Printed on October sixteenth, 2024 by Aristofanis Papadatos
Traders searching for a dependable and regular revenue stream might profit from investing in firms that pay month-to-month dividends. This may be extremely useful by way of enhancing predictability and minimizing the uncertainty of a inventory.
That mentioned, there are simply 77 firms that at present provide a month-to-month dividend fee, which might severely restrict the investor’s choices. You possibly can see all month-to-month dividend paying names right here.
You possibly can obtain our full Excel spreadsheet of all month-to-month dividend shares (together with metrics that matter, like dividend yield and payout ratio) by clicking on the hyperlink under:
One identify that we’ve not but reviewed is Chemtrade Logistics Earnings Fund (CGIFF), a Canadian-based belief that operates within the chemical substances trade. At present, the inventory is providing a dividend yield of 5.9%, which is nearly 5 occasions greater than the 1.2% yield of the S&P 500 Index.
Coupled with the truth that the belief pays out distributions on a month-to-month foundation, it might be an acceptable candidate for income-oriented buyers.
This text will consider the belief, its enterprise mannequin, and its distribution to find out if Chemtrade Logistics may very well be candidate for buy.
Enterprise Overview
Chemtrade Logistics Earnings Fund is a diversified belief that gives industrial chemical substances and providers important to the gasoline, motor oil, positive paper, metals, and water therapy industries and to different main industrial and client markets. The belief operates by means of two key segments: Sulphur & Water Chemical compounds (SWC) and Electrochemicals (EC).
The SWC phase focuses on a spread of merchandise, together with Sulphur-based, water therapy, and specialty chemical substances. As a number one provider of inorganic coagulants for water therapy in North America, Chemtrade’s SWC phase generated roughly 60% of the belief’s whole revenues final yr.
However, the EC phase primarily produces and markets Sodium Chlorate and Chlor-Alkali merchandise. Chemtrade is a big provider of Sodium Chlorate in Canada and Brazil, which is broadly utilized as a bleaching agent within the pulp and paper trade.
Moreover, its Chlor-Alkali merchandise are important in supporting numerous processes in industries like metal, oil & gasoline, water therapy, and pulp & paper. Final yr, the EC phase generated the remaining 40% of the belief’s whole revenues.
Supply: Investor Presentation
In fiscal 2023, Chemtrade benefited from elevated demand for its chemical substances and rising commodity costs, resulting in revenues reaching an all-time excessive degree of C$1.85 billion. This represents 2% development in comparison with 2022 and 33% development in comparison with 2021.
Because of such a big enhance in revenues, Chemtrade was capable of leverage the numerous enhance in pricing and manufacturing volumes to extend its margins, leading to much more important development in its profitability metrics. Its Adjusted EBITDA hit a brand new file of C$503 million, a rise of 17% year-over-year, whereas the belief’s distributable money after upkeep CAPEX landed at C$283 million, up 32% year-over-year.
For fiscal 2024, Chemtrade’s administration stays optimistic, seeing continued energy throughout each of its enterprise segments. Whereas the corporate might not match the file efficiency it achieved final yr, it’s poised to take care of above common outcomes this yr. The belief just lately raised its fiscal 2024 adjusted EBITDA steerage from $395-$435 million to $430-$460 million.
The midpoint of this vary would signify the second-highest degree the belief has ever generated, trailing solely its file 2023 outcomes. In actual fact, following very sturdy efficiency in the course of the first half of 2024, the belief might elevate its steerage for the total yr once more.
Development Prospects
Chemtrade has achieved important development in its historical past, with its revenues and EBITDA rising at a compound annual development charge (CAGR) of three% and 11% during the last decade, respectively. This development was achieved by means of a mix of accretive acquisitions, strategic divestments, and natural development.
For instance, in 2017, the corporate acquired Canexus Company, which is understood for producing sodium chlorate and chlor-alkali merchandise at a low price. On the identical time, Chemtrade divested Aglobis, a smaller sulfur and sulphuric acid advertising and marketing enterprise.
Relating to natural development, the corporate expects its present enterprise to profit from the ever-increasing demand for semiconductors. The CHIPS Act is predicted to maintain driving development within the semiconductor development trade, with a number of new semiconductor fabrication crops underneath building within the U.S. As Chemtrade is the biggest provider of UPA (Ultrapure Acid) in North America, it’s anticipated to proceed experiencing elevated demand.
Moreover, stricter laws and inhabitants development are anticipated to maintain the rising demand for coagulants, which also needs to profit Chemtrade as one of many largest suppliers of inorganic coagulants for water therapy in North America.
Dividend Evaluation
In keeping with its objective of offering sustainable revenue for unitholders, Chemtrade has paid a month-to-month distribution since its inception.
Following a sequence of distribution cuts between 2003 and 2006 after a shaky IPO, Chemtrade paid a month-to-month distribution of C$0.11 between January 2007 and January 2020 (145 consecutive months). The month-to-month distribution was then halved at C$0.05, the place it has remained since.
As famous earlier, Chemtrade’s income and EBITDA development appear spectacular at first sight, which can elevate questions on why the corporate wanted to scale back its month-to-month distribution. Nonetheless, it must be famous that Chemtrade distributed most of its income and that its development was primarily pushed by acquisitions financed by means of debt and fairness issuance.
Resulting from elevated curiosity bills and dilution from distributing to a bigger variety of models, Chemtrade discovered itself in a troublesome place, which necessitated a discount in its month-to-month distribution to ensure that the corporate to strengthen its stability sheet.
The belief has achieved exceptional progress in that regard, as its web debt/LTM (Final Twelve Months) Adjusted EBITDA has already declined from 6.1X in Q2-2021 to 2.0X in Q2-2024. The payout ratio additionally improved dramatically following the distribution minimize, standing at 35% of distributable money this yr.
Supply: Investor Presentation
Regardless of the practically 23-year excessive rates of interest prevailing proper now, Chemtrade at present has a stable curiosity protection ratio of 5.6. As well as, it has web debt of $909 million, which is 92% of the present market capitalization of the inventory and therefore it’s manageable.
Contemplating the numerous progress made by way of decreasing debt, the belief might resume elevating its distributions within the years to return, as it may well simply afford to. Alternatively, administration might select to take care of the present charge of month-to-month payouts and as an alternative allocate capital in direction of development alternatives and additional deleveraging.
The latter situation appears extra believable, particularly provided that rates of interest stay excessive and that the models of Chemtrade are already connected to an above common 5.9% dividend yield.
Closing Ideas
Chemtrade has a commendable observe file of paying month-to-month distributions, though the discount in 2020 revealed some imprudent capital allocation by the administration previously decade.
However, we expect that Chemtrade nonetheless presents a compelling choice for income-oriented buyers in search of reliable and frequent payouts. With seen natural development avenues to capitalize on, important progress made in deleveraging in latest quarters, a cushty payout ratio, and a beneficiant yield of 5.9%, the belief’s funding case appears notably interesting.
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