Foolish investors know that building lasting wealth isn’t about chasing short-term trends but about owning high-quality dividend stocks with strong fundamentals and staying patient. Some of the best opportunities arise when great stocks experience short-term pullbacks, which allows investors to buy in at a discount.
One such opportunity exists right now. Aecon Group (TSX: ARE) has dropped 20% in the past three months, but it’s still up 68% over the last year. With a 3.3% dividend yield and a market cap of $1.5 billion, ARE stock currently trades at $23.20 per share. In this article, I’ll highlight why Aecon could be a fantastic dividend stock to buy and hold right now.
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What’s behind Aecon stock’s recent dip?
One of the possible reasons behind ARE stock’s recent dip could be the winding down of some of its large projects that had previously boosted its revenue. On top of that, the company faced some pressure from the impact of legacy fixed-price contracts, which weighed on its margins in most recent quarters. However, the good news is that those projects are nearing completion, and Aecon is shifting its focus to new, more predictable contracts that should help smooth out its earnings going forward.
At the same time, broader market conditions might have also played a role in pushing Aecon stock lower recently. Concerns about interest rates and overall economic growth have led to some short-term volatility across industrial stocks. But we shouldn’t forget that the demand for Aecon’s services isn’t going anywhere. If anything, the company is in a prime position to benefit from massive infrastructure investments in Canada and the U.S. over the coming years.
Financials could strengthen further
Despite ARE stock’s recent dip, Aecon’s financial growth trends look encouraging. In the third quarter of 2024, the company’s revenue rose 3% year over year to $1.28 billion. More importantly, the company saw a massive improvement in profitability, with its adjusted quarterly EBITDA (earnings before interest, taxes, depreciation, and amortization) jumping to $126.9 million, compared to just $32 million a year ago.
This improvement came largely because Aecon’s problematic legacy projects, which had been a drag on earnings, were no longer weighing on results. This could be seen as a huge win for investors because it means the company can now focus on higher-margin projects and long-term growth opportunities. Meanwhile, Aecon’s backlog remains strong at nearly $6 billion, giving strong revenue visibility for the next few years.
More reasons to invest in this dividend stock right now
Aecon isn’t just coasting on its existing projects but aggressively expanding its portfolio with major new contract wins. The company recently secured a $700 million contract to replace steam generators at three additional units of Bruce Power’s nuclear plant. It also reached commercial close on a massive $2.8 billion progressive design-build transit project, further strengthening its position in Canada’s infrastructure sector. Given these strong fundamentals, Aecon’s recent pullback might just be the opportunity you’ve been waiting for to buy a top dividend-paying stock at a discount.
