WSP Global Vs. Aecon: Which TSX Dividend Stock Is a Better Buy?

These two dividend stocks have plenty of backlog to support growth, but one comes out as the clear winner in terms of dividend support.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published July 31, 2024 4:30 pm EDT

There are few companies that are as strong when it comes to building infrastructure a WSP Global (TSX: WSP) and Aecon Group (TSX: ARE). Both TSX stocks have been strong buys over the years — that is, until the pandemic hit.

Now, investors have remained a bit on edge. Today, we’re going to discuss what to look for if you’re considering buying these TSX stocks. Not just for future growth but to support ongoing dividend payments while waiting for a recovery. To do that, let’s get into the most recent earnings from WSP stock and Aecon stock.

WSP stock

First, we have WSP stock. While the company’s earnings are due, we can still paint a fairly clear picture to see whether the company will continue to support dividend payments. These payments are currently at a 0.66% yield or $1.50 per share annually.

Overall, WSP’s first-quarter (Q1) 2024 earnings report shows strong revenue and earnings growth, improved margins, and a solid backlog, all of which are positive indicators for supporting dividend growth.

Revenues increased by 2.7% to $3.59 billion, and net revenues grew by 4.7% to $2.79 billion compared to Q1 2023. The company achieved a 4.6% organic growth in net revenues across all reportable segments, indicating strong performance across its core businesses.

WSP’s backlog stood at $14.2 billion, representing 11.8 months of revenues. The 10.3% organic backlog growth in the Americas segment over the past 12 months indicates a strong pipeline of future projects, which supports ongoing revenue generation and dividend payments.

The main areas of concern are the significant free cash outflows, but improvements in operating cash flow suggest the potential for better cash management moving forward. Although cash outflows from operating activities improved from a loss of $24.6 million to $10.4 million, the free cash outflow was still significant at $125.2 million. While debt remained under control, these outflows might raise concerns about the company’s ability to generate sufficient free cash flow to support dividend payments in the short term. However, improvements in operating cash flow are a positive sign.

Aecon stock

Now for Aecon stock, which reported its earnings on July 24. We can clearly see improvements underway and whether the stock can continue to support dividend payments. Aecon stock currently holds a dividend yield of 4.69% or $0.76 per share annually.

Aecon’s Q2 2024 earnings report presents a mixed picture of dividend-growth support. Revenue for the three months ended June 30, 2024, was $854 million, a significant decrease of 27% compared to the same period in 2023. The company reported a net loss of $123.9 million compared to a net profit of $28.2 million in Q2 2023.

Furthermore, Aecon faced significant negative impacts from four fixed-price legacy projects, contributing to a substantial operating loss. Cash and cash equivalents stood at $499 million at the end of Q2 2024, showing a decrease from $645 million at the end of 2023. Add in negative adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $153.5 million compared to a positive $16.7 million the year before, and it’s not looking bright.

However, the substantial backlog of $6.2 billion, strategic acquisitions, and management’s commitment to maintaining the dividend provide some confidence in the company’s ability to support dividend payments in the future.

Bottom line

The key, then, for investors wanting to know whether Aecon stock or WSP stock is the winning dividend stock comes down to the payout ratio. We need to know whether the company has enough cash on hand to cover payments or if they’re pushing out all funds to cover dividend payments.

Aecon stock has a payout ratio of just 34.65%, compared to WSP stock with 33.26%. With payout ratios basically the same then, I would consider Aecon stock the best choice. The company pays out more in dividends and is far more valuable, trading at just 6.53 times earnings compared to 50 times earnings for WSP stock. Furthermore, shares are up a whopping 48%, compared to WSP stock up 25%. All in all, this company looks like a strong dividend stock to consider today.