Diversification helps income investors with long-term financial goals like retirement counter uncertainties and protect stock portfolios. Most Canadian investors have big banks and large energy companies as anchor stocks. But if you’re looking for solid backups or second-liners, two smart stocks should be on your list.
Killam Apartment (TSX: KMP.UN) and Héroux-Devtek (TSX: HRX) trades at less than $20. You can buy them now right now and hold them forever. The businesses have bright outlooks in the years to come.
Long-term development program
Halifax-based Killam Apartment is one of Canada’s largest residential real estate investment trusts (REITs). This $2.25 billion REIT owns and operates apartments and manufactured home communities.
If you invest today, the share price is $19.08 (+6.57% year to date), while the dividend yield is 3.69%. The payout frequency is monthly. Thus far, Killam rental business and leasing activities have shown resiliency against massive industry headwinds.
After three quarters in 2023 (nine months ending September 30, 2023), property revenue and net operating income increased 6.9% and 9% to $261.3 million and $167.5 million versus the same period in 2022. Notably, net income jumped 101.3% year over year to $266.3 million.
Killam’s president and chief executive officer (CEO), Philip Fraser, notes the robust top-line growth. He said the REIT’s development program is part of its long-term strategy and should strengthen the portfolio.
Booming aerospace market
Héroux-Devtek is a non-dividend payer but has enormous growth potential. The $580.5 million company operates in the aerospace and defence industry. It’s also the third-largest landing gear manufacturer globally. At $17.25 per share, current HRX investors are up 13.49% year to date.
The demand for landing gear, including new systems and components, by commercial and defence sectors in the aerospace market is ever-growing. Heroux-Devtek’s impressive financial results will likely attract growth investors. In the third quarter (Q3) of 2023, sales and net income rose 16% and 406% to $163.5 million and $8.98 million versus Q3 2022.
On a year-to-date basis (nine months ending December 31, 2023), the top and bottom lines grew 15% and 133% year over year to $445.7 million and $17.6 million, respectively. Its president and CEO, Martin Brassard, said, “Our focus on stabilizing our production system is beginning to pay off, and the effects of our pricing initiatives in response to inflationary pressures are accelerating.”
Brassard added that throughput and profitability recovered and returned to historical levels amid a challenging supply chain environment. Heroux-Devtek’s diversified and balanced revenue mix (Civil and Defence aircraft markets) is a competitive advantage.
The company also benefits from recovering commercial air traffic and global defence demand. Civil sales brought in more sales in Q3 (41.4% revenue growth to $63.8 million) owing to increased deliveries for Boeing 777 and Embraer Praetor programs.
Defence sales increased 4.1%% to $99.7 million from a year ago due to higher aftermarket business for legacy programs like the Sikorsky CH-53K and Lockheed Martin F-35 programs.
Brassard expects the upward trend in sales volume and profitability to continue. He believes the bright outlook of the aerospace market will open business opportunities and sustain the momentum of management’s strategic initiatives over the next few years.
Quality investments
Killam Apartment and Heroux-Devtek are relatively cheap but quality investments. The former has a development program and long-term strategy, while the latter is well positioned in the booming aerospace market.
