Industrial stocks are a broad category of stocks that range from industrial machinery stocks to construction stocks. Some of these categories are economically sensitive, others are not. In today’s environment, certain industrial stocks are looking good.
In this article, I’d like to discuss one of these, Aecon Group Inc. (TSX: ARE).
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Why Aecon is the industrial stock to own
Aecon Group is one of Canada’s largest publicly traded construction and infrastructure development companies. The company generated revenue of $4.2 billion in 2024 and its current backlog stands at $9.7 billion, 54% higher than last year.
There are a few reasons that I like this industrial stock, and they’re quite simple. The first is its leading position in construction and infrastructure. The second is its exposure to an infrastructure industry that’s seeing a very favourable demand environment. For example, power infrastructure investment is expected to grow nicely. This will be driven by electricity demand from data centres and artificial intelligence, as well as utilities and nuclear operations.
For its part, Aecon is well-positioned to benefit from all of this spending. The company has a diversified mix of projects by geography, sector, contract size, and type. In fact, in Aecon’s latest quarter, construction revenue was divided between five segments. Please see the table below for the detailed breakdown.
Aecon: A value stock
Aecon’s stock price has performed well in the last three years, up 33%. This was driven by these positive infrastructure spending trends and realities. But since the end of 2024, Aecon’s stock price has been hit hard.
The primary reason is because Aecon’s result have been negatively affected by four of its legacy projects. The good news is that these projects are nearing substantial completion and as this happens, profitability is expected to improve. Once these projects are completed, the risk in the stock will be lessened.
Currently trading at $18.30, investing $7,000 in Aecon stock would buy roughly 400 shares. The stock is yielding 4.1%. Therefore, this would give you $289 in annual dividend income. Also, Aecon stock is pretty undervalued at this time. Trading at a mere 10 times 2026 expected earnings, this is a deep value stock.
Looking ahead
As far as what to expect from Aecon, I think a quick review of some of the highlights of this investment opportunity is in order. Firstly, there is a significant amount of infrastructure investment underway in North America. The positive population and immigration dynamics are driving this demand, as are the transition to a net zero economy. Finally, government infrastructure laws and spending plans continue to be positive.
Finally, the company’s focus on profitability, growth, and risk management has taken a significant amount of the risk out of its business. The global infrastructure player has a strong recurring revenue base, and it has taken a lot of the risk out of its projects by partnering so as to limit its debt load.
And as a final enticement for investors, Aecon has a strong history of dividend increases with a compound annual dividend growth rate (CAGR) of 8% .
