Canadians seeking out a strong dividend stock certainly have every right to be seeking out passive income. However, I would caution that this shouldn’t be a trade-off for returns. In fact, there are some strong dividend stocks out there providing stellar returns. But there’s one that could provide you with even more in the future.
Brookfield Business
The dividend stock I would keep an eye on these days has to be Brookfield Business Partners (TSX: BBU.UN). The company is the main holder of business and industrial services for its parent company, Brookfield Corporation. Since coming on the scene, it’s made several strong, long-term acquisitions investors can be happy with.
Moreover, these have been diversified investments in every sense of the word. Ranging from water and sewage companies in Brazil to auto dealers in the United States. Furthermore, the company continues to bring in investor interest through public offerings (IPO) and expansions.
Yet, the strong expansion has always been balanced by stable cash flow and investments. This included the recent abandonment of a US$1.8 billion IPO for a car battery manufacturer. BBU stock would, therefore, keep the car battery company on hand until reaching a better valuation for BBU stock.
Earnings continue to climb
That share price may be lower than analysts like, yet this should change once the market realizes the deal on the scene. BBU stock recently beat out earnings, thanks in large part to its car battery outperformance. The company reported earnings before interest, taxes, depreciation, and amortization (EBITDA) of US$167 million. This was a 17% increase year over year, well above projections.
Demand remains high for these car batteries in particular, and cost optimization led to an even higher margin than expected. Yet, while the IPO has been abandoned for now, once shares return to normal, investors should look out for the IPO of the car battery company, Clarios.
And once that happens, BBU stock should have more cash on hand for further acquisition opportunities. This is where it has a significant advantage over other companies. BBU stock is supported by Brookfield, and this allows the stock to expand with strong opportunities, while others need to keep cash in their pockets.
More to come
There is some strong net asset value upside in the near term for investors after seeing these strong results, coupled with a Clarios IPO. In fact, analysts believe there is a potential upside of 33% as of writing, with shares potentially hitting around $41 per share.
Therefore, as long as the company continues business as usual and puts forward an IPO at the right time, investors could see their shares rise significantly over the next year. Higher interest rates may have weighed on earnings in the last year. But that year is over.
Continuing into 2024, the company has proven its ability to maintain liquidity. So, with lower rates in the forecast, there is a chance for the company to expand. All while holding cash ready in the wings for any opportunity that arises. And with a 1.07% dividend on hand, it’s one of the best dividend stocks to consider for returns in 2024.
