While the broader markets are trading near all-time highs, shares of Algonquin Power & Utilities (TSX: AQN) are down 70% from record levels. The Canada-based utility company was forced to slash its dividends twice in the last two years due to higher interest rates, falling cash flow, and rising interest payouts. Algonquin Power also attributed its dividend cut to lower cash flows from its clean energy business.
Earlier this year, AQN completed the sale of its renewable energy business for US$2.5 billion. The proceeds will be used to lower its debt levels and make it a pure-play utility company.
Algonquin Power ended the third quarter (Q3) of 2024 with a long-term debt of $7.2 billion. Moreover, given consensus price target estimates, its adjusted earnings per share is forecast to narrow from $0.53 per share in 2023 to $0.31 per share in 2025. Despite the drawdown in AQN stock, analysts remain cautious as its dividend payout ratio is still high at 73.5%.
Given these factors, income-seeking Canadian investors should consider gaining exposure to fundamentally strong companies such as Bird Construction (TSX: BDT). Let’s see why.
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Is the TSX dividend stock a good buy?
Valued at a market cap of $1.3 billion, Bird Construction was founded in 1920. It specializes in industrial, commercial, and institutional construction projects across Canada. The company also has a strong commercial construction presence, building office towers, retail spaces, hotels, and mixed-use residential developments. It offers specialized services, including electrical infrastructure design, data communications, and lifecycle services. Bird serves diverse sectors, including oil and gas, mining, renewables, and infrastructure development.
Bird Construction pays shareholders an annual dividend of $0.84 per share, which translates to a yield of over 3.5%. Further, these payouts have more than doubled in the past three years.
Since February 2015, the TSX stock has returned 95% to shareholders. However, if we adjust for dividend reinvestments, cumulative returns are closer to 223%.
While the dividend stock has crushed the TSX index, it trades 25% below all-time highs, allowing you to buy an undervalued stock at a discount.
In Q3 of 2024, Bird Construction reported revenue of $898.9 million, an increase of 15% year over year due to the acquisition of Jacob Bros. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) expanded by 42% to $70.1 million, indicating a margin of 7.8%, while adjusted earnings growth stood at 27% year over year.
Bird Construction ended Q3 with a backlog of $7.9 billion, a contracted backlog of $3.8 billion, and a pending backlog of $4.1 billion. Despite some project delays pushing revenue into early 2025, Bird expects full-year 2024 revenues of approximately $3.4 billion and an adjusted EBITDA margin exceeding 6%.
Additionally, its gross profit margin improved to 11.4% in Q3 compared to 9.3% in the same quarter last year, driven by higher-margin projects and improved operational efficiency.
Is the TSX stock undervalued?
According to consensus estimates, Bird Construction is on track to increase sales from $2.8 billion in 2023 to $3.93 billion in 2025. Comparatively, adjusted earnings are projected to improve from $1.38 in 2023 to $2.72. So, priced at 8.75 times forward earnings, the TSX stock is quite cheap and trades at a 50% discount to average analyst price targets.
