When it comes to investing for income, a 0.6% dividend yield might seem far too low to catch the attention of most income-focused investors. After all, many investors look for steady dividends as a way to generate reliable income. But WSP Global (TSX:WSP), a leader in the global engineering and infrastructure space, might surprise you. Despite its modest yield, the stock has proven to be a top performer for long-term investors. In fact, its dividend yield today is a direct result of remarkable share price appreciation over the past decade, making WSP Global an interesting candidate for investors.
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A dividend history reflecting solid stock price growth
The 0.6% dividend yield may be modest in comparison to other high-yield stocks, but it’s important to recognize the context. WSP Global has maintained the same dividend payout since 2012, when the yield was significantly higher – around 7.5%. That large yield, however, was primarily a result of the underappreciated stock at the time. The reason the yield is now so low is simple: WSP’s share price has skyrocketed, fueled by impressive growth in both its revenues and earnings.
Since 2013, the stock has posted an astounding compound annual growth rate (CAGR) of around 24%. For investors who bought in early, that means a return that has multiplied their initial investment nearly 13 times. In practical terms, a $10,000 investment in WSP Global in 2013 would be worth over $131,000 today. That kind of return is hard to ignore, especially when combined with the stability of consistent dividends.
For long-term investors, this creates an interesting opportunity. With the WSP stock price surging, investors could sell a portion of their holdings to realize a partial gain while still holding onto the rest for future growth. Alternatively, the capital gains could be reinvested into a higher-yielding stock. While market corrections – like the 30% drop during the 2020 pandemic – are always possible, the long-term potential of WSP Global remains strong.
Strong financials and growth prospects make WSP Global a buy
Beyond its historical performance, WSP Global continues to show solid fundamentals and a robust outlook. Despite the high price-to-earnings (P/E) ratio, which currently hovers around 30.9, analysts are still bullish on the stock. In fact, the stock’s 12-month target price is estimated to be over $271 per share, representing a 12% upside from its current price. For a company with a proven track record of growth and resilience, this presents a potential opportunity for both new and existing investors.
WSP Global’s recent earnings report only reinforces its strong position in the market. Year-to-date, the company has seen revenue growth of 7.3%, reaching $11.5 billion. Adjusted EBITDA, a cash flow proxy, grew by 11% to nearly $1.6 billion, supported by a margin expansion of 0.5% to 17.7%. These solid results reflect strong demand for WSP Global’s services and its ability to adapt in a rapidly changing market. The company’s backlog of projects has also risen 3.9% year-over-year, totalling $14.8 billion – a sign that future growth is likely to remain robust.
For 2024, WSP Global projects net revenue growth of approximately 9.6% and a 12.8% increase in adjusted EBITDA. These forward-looking estimates suggest that the company has a healthy outlook with its growth trajectory intact. Given its steady dividend payouts and solid growth prospects, WSP Global may be a logical choice for investors who are willing to look beyond short-term yield for long-term gains, especially if investors are able to grab shares on a dip.
