Month-to-month Dividend Inventory in Focus: ChemTrade Logistics Revenue Fund

Revealed on October sixteenth, 2024 by Aristofanis Papadatos

Buyers searching for a dependable and regular revenue stream could profit from investing in corporations that pay month-to-month dividends. This may be extremely helpful when it comes to enhancing predictability and minimizing the uncertainty of a inventory.

That mentioned, there are simply 77 corporations that at the moment 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 now we have not but reviewed is Chemtrade Logistics Revenue Fund (CGIFF), a Canadian-based belief that operates within the chemical substances business. At the moment, the inventory is providing a dividend yield of 5.9%, which is sort of 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 an excellent candidate for buy.

Enterprise Overview

Chemtrade Logistics Revenue Fund is a diversified belief that gives industrial chemical substances and providers important to the gasoline, motor oil, high quality paper, metals, and water therapy industries and to different main industrial and client markets. The belief operates by way of two key segments: Sulphur & Water Chemical substances (SWC) and Electrochemicals (EC).

The SWC phase focuses on a variety 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 complete revenues final yr.

Alternatively, the EC phase primarily produces and markets Sodium Chlorate and Chlor-Alkali merchandise. Chemtrade is a major provider of Sodium Chlorate in Canada and Brazil, which is extensively utilized as a bleaching agent within the pulp and paper business.

Moreover, its Chlor-Alkali merchandise are important in supporting numerous processes in industries like metal, oil & fuel, water therapy, and pulp & paper. Final yr, the EC phase generated the remaining 40% of the belief’s complete 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.

On account of such a major 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 report 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 power throughout each of its enterprise segments. Whereas the corporate could not match the report efficiency it achieved final yr, it’s poised to keep up above common outcomes this yr. The belief not too long ago raised its fiscal 2024 adjusted EBITDA steering from $395-$435 million to $430-$460 million.

The midpoint of this vary would characterize the second-highest degree the belief has ever generated, trailing solely its report 2023 outcomes. The truth is, following very robust efficiency through the first half of 2024, the belief could increase its steering 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 fee (CAGR) of three% and 11% during the last decade, respectively. This development was achieved by way of a mix of accretive acquisitions, strategic divestments, and natural development.

For instance, in 2017, the corporate acquired Canexus Company, which is thought 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 enterprise.

Concerning 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 business, with a number of new semiconductor fabrication vegetation below building within the U.S. As Chemtrade is the most important 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 must also profit Chemtrade as one of many largest suppliers of inorganic coagulants for water therapy in North America.

Dividend Evaluation

In keeping with its purpose of offering sustainable revenue for unitholders, Chemtrade has paid a month-to-month distribution since its inception.

Following a collection 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 increase questions on why the corporate wanted to cut back its month-to-month distribution. Nonetheless, it ought to be famous that Chemtrade distributed most of its earnings and that its development was primarily pushed by acquisitions financed by way of debt and fairness issuance.

As a consequence of elevated curiosity bills and dilution from distributing to a bigger variety of items, 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 internet 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 lower, standing at 35% of distributable money this yr.

Supply: Investor Presentation

Regardless of the almost 23-year excessive rates of interest prevailing proper now, Chemtrade at the moment has a stable curiosity protection ratio of 5.6. As well as, it has internet 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 when it comes to decreasing debt, the belief could resume elevating its distributions within the years to come back, as it may well simply afford to. Alternatively, administration might select to keep up the present fee of month-to-month payouts and as an alternative allocate capital in direction of development alternatives and additional deleveraging.

The latter state of affairs appears extra believable, particularly on condition that rates of interest stay excessive and that the items of Chemtrade are already hooked up to an above common 5.9% dividend yield.

Remaining Ideas

Chemtrade has a commendable monitor report of paying month-to-month distributions, though the discount in 2020 revealed some imprudent capital allocation by the administration previously decade.

Nonetheless, we predict that Chemtrade nonetheless gives a compelling choice for income-oriented buyers looking for reliable and frequent payouts. With seen natural development avenues to capitalize on, important progress made in deleveraging in current quarters, a cushty payout ratio, and a beneficiant yield of 5.9%, the belief’s funding case appears notably interesting.

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