Rogers Sugar (TSX:RSI) used to be an income fund until its conversion to a regular listed stock in 2011. The consumer defensive stock retains its quality as a reliable passive income investment play for 2024. Adding onto a juicy 6.4% dividend yield, Rogers Sugar has room for steady growth as its markets improve while management follows through on a capacity expansion project. I’m bullish on RSI stock’s capacity to outperform some top dividend stocks and potential to remain a reliable income play.
Rogers Sugar is Canada’s leading producer of refined sugar and maple syrup products. The $589 million company has seen growing domestic demand for its products over the past five years. Coupled with rising export demand, management is following through on a planned $200 million capital project to expand production capacity, which should go operational by late 2025.
Rogers Sugar reports double-digit revenue growth despite challenges
In its first-quarter 2024 earnings report released on February 8, 2024, Rogers Sugar increased its first-quarter 2024 revenue by 10.4% year over year and maintained its gross margin above 15.4% during the past quarter, even as production stalled at its Vancouver refinery during the past four months due to a worker strike.
The worker strike, which began on September 28, 2023, was a significant drag on revenue growth. The Vancouver refinery produces 17% of the company’s annual sugar production. Rogers Sugar relied on production from its plants in Eastern Canada to meet customer demand in Western Canada, reducing export shipments.
To investors’ relief, the strike has ended following a resolution signed on the first of February this year. However, management has reduced its annual sugar volume forecast for Fiscal Year 2024 from 800,000 metric tonnes to 790,000 metric tonnes due to lost production. Maple product volumes may remain flat at 43.5 million pounds for the year.
Company managed positive revenue growth while production stalled
Despite lower productivity, Rogers Sugar benefited from higher pricing on new contracts for its sugar products. Maple product market economics have significantly improved as stockpile levels drop due to successive periods of lower harvests. The company is also realizing cost savings from automating maple production facilities, and maple gross margins expanded to 10.3% during the past quarter, up from 7.7% a year ago.
Looking ahead, an ongoing expansion project to increase production and logistic capacity of eastern sugar refining operations in Montreal and Toronto is progressing well. The $200 million project may add 100,000 metric tonnes of annual incremental refined sugar capacity to serve a growing Canadian market.
Higher production could free up more of Rogers Sugar’s production feed into the export market, help grow revenue, and grow the company’s recurring earnings. Investors may start to see the impact of capital investments during the first half of Fiscal Year 2026, which begins in the fourth quarter of Calendar Year 2025.
Rogers Sugar stock: A reliable dividend stock to buy in February 2024
Rogers Sugar pays a flat $0.09 per share quarterly dividend, currently yielding 6.4% annually. The dividend has remained unchanged since June 2012.
Should investors rely on Rogers Sugar’s high dividend? The company’s dividend was well supported by earnings in 2023. Dividends accounted for 73.5% of the company’s basic earnings per share over the past four quarters.
Notably, Rogers Sugar’s dividend is well supported by recurring cash flows. The company’s annual cash dividends for 2023 and 2022 accounted for 85.4% and 64.7% of free cash flow, respectively. The dividend remained well supported despite increased capital expenditures in 2023 and should remain secure in 2024 as all assets resume full operation after a previous strike.
Rogers Sugar stock undervalued
Rogers Sugar is a reliable high-yield dividend stock offering well-covered quarterly payouts. Income-oriented investors could purchase the stock for recurring passive income purposes.
Importantly, shares appear more undervalued than they have been in years. Rogers Sugar’s stock is cheaper now compared to the past year. Its forward Enterprise Value-to-EBITDA (EV/EBITDA) multiple of 8.1 is lower than the five-year average multiple of 9.2. Shares last traded at these lower levels during the market fallout caused by COVID-19 in 2020.
