For new investors who have never had the opportunity to invest through a vicious bear market, it can pay dividends to focus on Canadian dividend payers that can find a way to keep on growing, even in down economies. Indeed, right now, we’re in the midst of a bull market, one that might be made even fiercer as the rise of AI looks to drive some kind of productivity gains.
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Cascades: The mid-cap dividend stock that’s gaining ground
Either way, shares of Cascades (TSX: CAS) have really been picking up traction, gaining an outstanding 60% in the past three months. The company is in the steady, but boring and often choppy business of hygiene paper products, much of which incorporates recycled fibres. Whether we’re talking about cardboard boxes, tissues, or other eco-friendly packaging that we really don’t think all too much about on the day-to-day, Cascades is the firm that stands behind such essential products consumed across the continent.
Despite the impressive breakout rally to nearly $17 per share, shares of CAS are still priced like a value stock, now going for 16.8 times trailing price to earnings (P/E), while also yielding a very generous 2.82%.
Of course, pulp price fluctuations will always pave the way for volatility, but the key thing here for investors is that such price moves are likely to be less correlated with the broader TSX Index. For investors seeking mid-cap exposure ($1.71 billion market cap) and one of the least-talked-about economic moats out there, I do think Cascades is worth a closer look, even though the parabolic bounce means that the easy money has already been made.
What a quarter that was!
With a solid second-quarter number in the books that demonstrated fundamental improvements right across the board, I think there’s little reason to book profits, even though I’m sure parabolic surges are enough to make just about any value investor a tad more nervous. With cost reduction efforts finally (literally) paying dividends and the firm continuing to improve the state of its balance sheet through deleveraging, I wouldn’t sleep on the name, especially as the firm looks to continue operating at a high level.
Indeed, tissue products and paper towels are not an exciting industry. But with the recent margin gains, which I believe are here to stay, and the tissue expansion to bring on new capacity to meet healthy demand, I think that a name like Cascades can find a way to fare well, regardless of what the Canadian economy ends up doing next.
What’s most exciting about the Cascades story, at least in my very humble opinion, is not that demand is relatively steady in most environments (cardboard, tissues, and all the sort are a necessity in economic expansions and contractions), but the trajectory of margins, which I believe to be structural.
The bottom line
As the company operates more efficiently while expanding steadily, I see the firm as being able to keep impressing, even when commodity price moves don’t go the firm’s way. All considered, Cascades is on track to hit $600 million of run-rate adjusted EBITDA for the second half of the year. That’s seriously impressive for a firm whose shares were stuck in limbo for so long.
