TSX Domination: The 5% Dividend Stock to Watch

Aecon (TSX:ARE) stock has shot up 59% in the last few months on the back of strong earnings and a new partnership.

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Shares of Aecon Group (TSX:ARE) have hit 52-week highs recently, with Aecon stock up 16% in the last year. However, in just the last few months, it’s been even more impressive. Shares in that time have climbed 59% in that time!

So, what gives? Today, we’re going to look at the TSX-dominating stock and why now is still a great time to bring in its superb dividend with a yield of 5.07%.

What happened?

Shares of Aecon stock have been climbing higher for a few reasons, both micro and macro, at this point. First off, there have been several upward revisions to the company by analysts, reflecting a higher price target as they’re optimistic about the company’s future.

The company has also continued to put out positive earnings, with even more likely on the way. Again, on a micro level, this includes a partnership with GO Transit. Made in January of this year, the company secured a whopping 23-year contract to operate and maintain the GO Transit system in the Greater Golden Horseshoe Area. This is a huge contract win, on top of others, for investor confidence and income.

But overall, there is growth in the construction sector in general. The Canadian construction sector was expected to show moderate growth in 2024, and Aecon stock will very likely be a benefactor.

Why analysts like the stock

As mentioned, analysts continue to weigh in and upgrade Aecon stock. Here’s what they’re looking at in particular. There is confidence in the company’s fundamentals, which will likely be looked at once more during this quarter’s earnings. Analysts like the company’s solid financial performance, with consistent profitability and healthy metrics. It also holds an experienced management team that has inspired confidence while the stock continued to navigate challenges such as interest rates today, and the pandemic in the past.

What’s more, the company continues to hold a large and established position in the Canadian construction sector. And this is a huge advantage when trying to gain even more future projects. As seen with the GO Transit deal.

A dividend provider

As of writing, Aecon stock holds a 5.07% dividend yield. And that’s certainly great, but if you’re looking for a dividend stock, you want to make sure that yield is going to stay solid. In this case, again, the company looks strong. First off, that yield is still higher than its five-year average of 4.67%. What’s more, it holds a payout ratio of just 32.89%!

This means not only is the payout solid, but it could indeed grow in the near future. The company certainly has enough earnings on hand to be able to do so — especially considering it would take just 32.92% of equity to pay off all its debts at this point.

That increase also looks likely, given that the company has a history of increasing its dividend over the past 15 years. This can be yet another reason for investors to consider Aecon stock. And not just now, while shares are rebounding. But for long-term rewards and long-term passive income — not just through dividends but returns as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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