October 24, 2014

Canadian Dividend Stocks in Engineering

 

I won’t lie to you, when we look at Canadian dividend stocks in the engineering sectors we are far from the Canadian banks and the Telecoms. However, Canadian engineering knowledge has a high reputation worldwide. Thanks to Quebec success stories SNC Lavalin (SNC) & Genivar (GNV). With the current enthusiasm around real assets, engineering stocks may be a great addition in your portfolio if you are looking for both dividends and growth from a Canadian stock.

 

Champlain bridgeWhat are “Real Assets”?

Real asset is a “new” asset classification for everything surrounding highways & bridges construction & maintenance. You can also add pipelines and urban construction to this asset classes. Infrastructure maintenance is a major concern not only for the Canadian Government but across the world. While our highways and bridges require immediate maintenance, emerging markets are in a big need of building solid infrastructure to support their economic growth.

 

This is where engineering firms will come into play: the world needs their expertise to build the right structure. Since both US Government and Canadian Government want to massively invest in their infrastructure, engineering firms will be the first companies to get contract in order to provide reports and plans.

 

A Major Competitive Advantage

Canadian engineering firms have been around for a while (SNC has been founded back in 1911) and one of their major advantage is the Canadian weather! One of the biggest engineering challenges is elaborating structures that will face Mother Nature with a smile. Since we have one of the most diversified and extreme weather in Canada, our firms are used to “plan for the worse”.

 

Great Perspectives

As I mentioned, the government’s interest in refreshing its bridges (Champlain Bridge in Montreal should be the first one) and emerging markets urging demand for bigger infrastructures will promise a bright future for those firm who are able to establish themselves as leader in the industry.

 

See our Canadian Dividend Engineering Stocks here:

SNC Lavalin (SNC)

Genivar (GNV)

IBI Group (IGB)

MKS (MKX)

 

image credit

MKS Inc. (MKX)


 

MKS Inc. (MKX) is an interesting stock option if you are looking to diversify your holdings within the Canadian engineering sector.  MKS is unique in that they their main focus is software engineering, as opposed to the more common types of engineering such as city planning, transportation efficiency, and facility management.  MKS (MKX) describes itself as a, “Global leader for application lifecycle management solutions.”  This is a fairly complicated way of saying that MKS is hired to help companies maximize the efficiency of their software, networks, and other computer-related applications.

 

MKS Inc. (MKS) lists five key components that have allowed them to rise to the top of the industry.  They are:

 

  1. Maintain our key differentiating advantage of one unified software engineering platform to build market leading solutions.
  2. Offer industry-leading capabilities in the key disciplines of software engineering, throughout the entire lifecycle.
  3. Focus on the most challenging development organizations, with diversity of platforms, applications, processes and geography, and those with the most burning software complexity challenges.
  4. Lean on our strong, domain knowledgeable consulting strength to maximize deployment, and therefore, value to our customers.
  5. Integrate with the key related software engineering tools.

 

MKS credits their success to the fact they are changing the way software is used in many workplaces.  They claim that before their main product (MKS Integrity) hit the market, most companies looked at software as, “Many disparate tools, loosely coupled together, in an attempt to provide a solution… Software ‘tool’ vendors embarked upon a strategy of acquiring additional point tools and attempting to string them all together to provide a ‘suite’ that addressed the software development lifecycle.”  MKS Inc. (MKX) changed that whole dynamic with their new approach.  Their goal is to build complete systems that are fully integrated and designed to work together instead of a bunch of separate parts that can be mashed together in order to make a working compromise.  The company purports that this efficient new approach can be broadly applied to a wide variety of concepts and businesses.  Considering how quickly the modern workplace is evolving technologically, I can see the benefits of this approach.  MKS Inc. (MKX) has successfully applied their software applications in the fields of automotive, medical, defense and aerospace.

 

I hesitate to make a recommendation on MKS one way or another simply because I know so little about the software field.  I am not sure I fully understand the complete scope of the services and products that they MKS produces.  From a purely financial statistics perspective the company appears to be in solid shape.  They have very little debt, a nice 4.13% dividend yield that includes solid growth numbers in the recent past, and moderates sales growth.  With the huge (and growing) demand for software efficiency in so many different industries MKS Inc. (MKX) could definitely be a solid play for those who can properly evaluate technological solutions in general.

 

 

SNC-Lavalin (SNC)

 

 

SNC-Lavalin is one of Canada’s greatest engineering success stories, and has recently been recognized as one of Canada’s most stable and mature companies by the Canadian dividend growers list.  The company started as a small consulting firm in Montreal in 1911.  From those humble beginnings SNC-Lavalin has grew into an international engineering conglomerate that has 21,000 employees in more than 100 countries around the world.  If you are looking to diversify your portfolio, this is likely one of the more stable, dividend-paying, Canadian engineering stocks you can find.

 

The Canadian Dividend Growers List

 

Becoming a member of the Canadian dividend growers list means that a company has raised its dividend for 15 straight years.  Thanks to a true test of the markets in 2008, there are relatively few Canadian stocks that meet this lofty benchmark.  Even the “cash cows” also known as the oligopoly of Canadian banks (CIBC, Royal Bank, Scotia Bank, Bank of Montreal, Toronto-Dominion Bank, and the National Bank of Canada) did not make this elite list due to the fact that they had to freeze their dividends during the recession.  Investors who are seeking stable income streams can look upon a record like that and take real assurance that the company makes rewarding its shareholders a priority, as well as the fact that SNC-Lavalin (SNC) was strong to not only weather the financial storm, but thrive in it.  There are few stocks out there on the TSX that can say their dividend has seen a 25% increase over the gruelling last give years.  SNC joins such dividend stalwarts as Fortis Inc. and the Canadian National Railway on the Canadian dividend growers list.

 

In The News

 

SNC-Lavalin has been in the news a lot recently due to their massive 15-million dollar deal to buy the nuclear energy technology called the Candu reactor from the Canadian government.  This is just the most recent acquisition from a company that has been steadily growing for literally the last one hundred years.  Immediately upon announcing their take over, SNC management announced that they would be streamlining the company and making it more competitive by shedding 800 jobs, out of a 2,000 person workforce.  Citing the need to compete with private industry, the move was well received by shareholders, as stock prices climbed about 4% on the week.

 

Education Programs

 

One notable aspect about SNC-Lavalin (SNC) operations has been its close relationship with the education sector in Canada, and most recently on an international level.  The engineering powerhouse has connections to 13 of the best engineering programs amongst Canadian universities and has begin similar programs in the USA, France, Belgium, Chile and Egypt.

 

Summary

 

SNC-Lavalin (SNC) has operations in literally every area of engineering that I was able to research.  Their business model emphasizes flexibility and highlights the fact that they are one of the few companies on the international stage that can finance, design, build, own, operate and maintain infrastructure facilities worldwide.  Their dividend yield of 1.3% doesn’t look impressive at first glance, but with a company that has such a great balance sheet and growth profile, you will have to pay to get it.  It is worth noting that SNC employs about 12,000 people in Canada and about half of those employees feel strongly enough about the company to own shares in it.

 

SNC Canadian Dividend Stock Graph

TSE SNC

SNC Canadian Dividend Stock Metrics

 

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
SNCSNC-Lavalin Group Inc54.241.5523.50.369579225.6379816.12904

IBI Group Inc. (IBG)

 


 

The IBI Group Inc. (IBG) is another of the Canadian companies to go through a re-structuring in 2011 due to the change in tax rules regarding income trusts.  While these new tax adjustments skew the immediate financials of the company (especially the dividend numbers), a closer look reveals a solid engineering firm that ranks amongst the largest in Canada.  The company focuses on four main areas: Urban Land, Facilities, Transportation, and Intelligent Systems.  It even boasts the critically acclaimed Candlestick Park in San Francisco amongst its many noteworthy achievements.  IBI Group Inc (IBG) is clearly not just a regional Canadian engineering presence, but is an international company as well.

 


IBI GroupIBI started in 1974 with a self described, “Mandate to deliver integrates services based on sustainable planning and design.”  In the first 25 years of the company the original nine partners seen an increase in employee numbers from 30 to 500, and since then the IBI Group (IBG) has supplemented its natural growth with the acquisition of 32 established international firms.  In 2004 the IBI Income Fund and IBI Group Management combined under the income fund banner (in order to take advantage of the Canadian tax break granted to income trusts) and in 2011 the stock was renamed the IBI Group Inc. as the company went to a more conventional corporate structure.  They now have over 2,600 professionals working in 70 offices around the world.

 

IBI Group (IBG) believes that they key to sustainable development in 21st century urban environments is found it the integration of the four core disciplines – Urban Land, Facilities, Transportation, and Intelligent systems – that IBI offers.  They work with a wide range of clients that have a diverse set of needs and solutions.  IBI Group (IBG) works with public and private companies and offers services to clients that range from mega-conglomerates to small municipalities.  They specialise in the sectors of transportation, residential housing, recreational facilities (Candlestick Park), healthcare and education.  Their focus on transportation has proven to be especially lucrative as they have projects that include roadways, rail, air, marine, emergency services and parking facilities.

 

As a stock selection IBI Group Inc. (IBG) presents a mixed bag to investors.  On one hand they do offer a great dividend yield at 9.79%; however, since re-structuring from an income trust the dividend has actually fell almost 13% and I believe that trend will continue.  With a suspect debt-to-capital ratio of .81, I have my reservations about jumping into this stock with both feet.  The company’s most recent financial report claims that international growth prospects are strong, but I would wait to see their balance sheet stabilize as they complete their transition into a corporation before I would commit to a major investment position, especially with such established stalwarts as SNC-Lavalin (SNC) in the same sector of the TSX.

 

 

IBG Canadian Dividend Stock Graph

TSE IBG

IBC Canadian Dividend Stock Metrics

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
IBGIBI Group Inc14.587.57136.690.81276094.632799-10.3276

Genivar Inc. GNV

 

Genivar Inc. (GNV) is one of Canada’s top engineering picks for growth and value.  It offers services in the fields of multiple types of buildings, environmental projects, industrial needs, Municipal infrastructure, energy, project management, transportation, mining, and telecommunications.  The company describes itself as, “A leading Canadian Engineering Services firm providing private and public sector clients with a comprehensive range of professional consulting services, through all execution phases of a project including planning, design, constructions and maintenance.”  Genivar traces its routes back to 1959 in Quebec City, when two firms started that later merged in 1987 to form Genivar Inc.

 

GENIVARSince this merger, Genivar Inc. (GNV) has expanded rapidly, as they have been able to broaden their range of services through acquisition of other engineering companies.  This aggressive acquisition strategy has also allowed them to build an international presence.  Genivar still has the majority of their operations in Canada and employs about 4,500 people overall.  They are especially well regarded within the industry for clients who are looking for assistance in the earlier stages of their projects.

 

Genivar (GNV) was recently recognized as the “2nd hottest company in Canada” by the Zweig Letter Hot Firm List in 2010.  They have not missed a beat in the immediate aftermath as the company seen its revenues increase 18.6% in the first quarter of 2011.  Genivar Inc. was reorganized on January 1st 2011 as they switched their structure to that of a corporation.  Until this date they had been taking advantage of the Canadian tax loophole as an income trust (as had been many other companies).  While announcing the company’s latest acquisitions, Pierre Shoiry, President and Chief Executive of Genivar stated, “We have made some significant investments in our systems and support services over the past 18 months, and I wish to thank our employees for their continued support and efforts throughout this transition period.  We now have a stronger, scalable organization.”

 

Genivar (GNV) management claims that much of its success is due in part to their unique company vision and values that are prominently displayed in their official communications.  Genivar’s vision reads as, “Genivar is a leading global firm of community-minded people who make a difference,” and their values statement is, “Our values reflect who we are and how we interact with each other, whether with the colleagues, clients, unitholders or other stakeholders, Client Focus, Respect, Empowerment, Teamwork.”

Genivar Inc. (GNV) looks to be well positioned and offer investors some solid growth prospects.  They offer an impressive 6.59% dividend yield that will probably stabilize at a slightly lower rate as the company completes its transition from an income trust structure to a new corporate look (this also explains why the dividend has sunk 7.69% over the last year, this is fairly standard for all the Canadian companies that were operating under the Income Trust guidelines).  With almost no debt to speak of, and operating out of a well-established base, Genivar offers many compelling reasons to invest in their continued growth.

 

 GNV Canadian Dividend Stock Graph

TSE GNV

 GNV Canadian Dividend Stock Metrics

TickerNamePriceDividend YieldPayout RatioDEBT_TO_MKT_CAPDividend Growth 5 yearsDividend Growth 1 years
GNVGenivar Inc30.334.95120.340.01225235#N/A Field Not Applicable-1.282054