Published on October 16th, 2024 by Aristofanis Papadatos
Investors looking for a reliable and steady income stream may benefit from investing in companies that pay monthly dividends. This can be highly beneficial in terms of enhancing predictability and minimizing the uncertainty of a stock.
That said, there are just 77 companies that currently offer a monthly dividend payment, which can severely limit the investor’s options. You can see all monthly dividend paying names here.
You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter, like dividend yield and payout ratio) by clicking on the link below:
One name that we have not yet reviewed is Chemtrade Logistics Income Fund (CGIFF), a Canadian-based trust that operates in the chemicals industry. Currently, the stock is offering a dividend yield of 5.9%, which is almost five times higher than the 1.2% yield of the S&P 500 Index.
Coupled with the fact that the trust pays out distributions on a monthly basis, it may be a suitable candidate for income-oriented investors.
This article will evaluate the trust, its business model, and its distribution to determine if Chemtrade Logistics could be a good candidate for purchase.
Business Overview
Chemtrade Logistics Income Fund is a diversified trust that provides industrial chemicals and services critical to the gasoline, motor oil, fine paper, metals, and water treatment industries and to other major industrial and consumer markets. The trust operates through two key segments: Sulphur & Water Chemicals (SWC) and Electrochemicals (EC).
The SWC segment focuses on a range of products, including Sulphur-based, water treatment, and specialty chemicals. As a leading supplier of inorganic coagulants for water treatment in North America, Chemtrade’s SWC segment generated approximately 60% of the trust’s total revenues last year.
On the other hand, the EC segment primarily produces and markets Sodium Chlorate and Chlor-Alkali products. Chemtrade is a significant supplier of Sodium Chlorate in Canada and Brazil, which is widely utilized as a bleaching agent in the pulp and paper industry.
Furthermore, its Chlor-Alkali products are critical in supporting various processes in industries like steel, oil & gas, water treatment, and pulp & paper. Last year, the EC segment generated the remaining 40% of the trust’s total revenues.
Source: Investor Presentation
In fiscal 2023, Chemtrade benefited from elevated demand for its chemicals and rising commodity prices, leading to revenues reaching an all-time high level of C$1.85 billion. This represents 2% growth compared to 2022 and 33% growth compared to 2021.
As a result of such a significant increase in revenues, Chemtrade was able to leverage the significant increase in pricing and production volumes to increase its margins, resulting in even more significant growth in its profitability metrics. Its Adjusted EBITDA hit a new record of C$503 million, an increase of 17% year-over-year, while the trust’s distributable cash after maintenance CAPEX landed at C$283 million, up 32% year-over-year.
For fiscal 2024, Chemtrade’s management remains optimistic, seeing continued strength across both of its business segments. While the company may not match the record performance it achieved last year, it is poised to maintain above average results this year. The trust recently raised its fiscal 2024 adjusted EBITDA guidance from $395-$435 million to $430-$460 million.
The midpoint of this range would represent the second-highest level the trust has ever generated, trailing only its record 2023 results. In fact, following very strong performance during the first half of 2024, the trust may raise its guidance for the full year again.
Growth Prospects
Chemtrade has achieved significant growth in its history, with its revenues and EBITDA growing at a compound annual growth rate (CAGR) of 3% and 11% over the last decade, respectively. This growth was achieved through a blend of accretive acquisitions, strategic divestments, and organic growth.
For example, in 2017, the company acquired Canexus Corporation, which is known for producing sodium chlorate and chlor-alkali products at a low cost. At the same time, Chemtrade divested Aglobis, a smaller sulfur and sulphuric acid marketing business.
Regarding organic growth, the company expects its current business to benefit from the ever-increasing demand for semiconductors. The CHIPS Act is expected to keep driving growth in the semiconductor growth industry, with several new semiconductor fabrication plants under construction in the U.S. As Chemtrade is the largest supplier of UPA (Ultrapure Acid) in North America, it is expected to continue experiencing elevated demand.
Furthermore, stricter regulations and population growth are expected to sustain the growing demand for coagulants, which should also benefit Chemtrade as one of the largest suppliers of inorganic coagulants for water treatment in North America.
Dividend Analysis
In line with its goal of providing sustainable income for unitholders, Chemtrade has paid a monthly distribution since its inception.
Following a series of distribution cuts between 2003 and 2006 after a shaky IPO, Chemtrade paid a monthly distribution of C$0.11 between January 2007 and January 2020 (145 consecutive months). The monthly distribution was then halved at C$0.05, where it has remained since.
As noted earlier, Chemtrade’s revenue and EBITDA growth seem impressive at first sight, which may raise questions about why the company needed to reduce its monthly distribution. However, it should be noted that Chemtrade distributed most of its profits and that its growth was mainly driven by acquisitions financed through debt and equity issuance.
Due to increased interest expenses and dilution from distributing to a larger number of units, Chemtrade found itself in a difficult position, which necessitated a reduction in its monthly distribution in order for the company to strengthen its balance sheet.
The trust has achieved remarkable progress in that regard, as its net debt/LTM (Last Twelve Months) Adjusted EBITDA has already declined from 6.1X in Q2-2021 to 2.0X in Q2-2024. The payout ratio also improved dramatically following the distribution cut, standing at 35% of distributable cash this year.
Source: Investor Presentation
Despite the nearly 23-year high interest rates prevailing right now, Chemtrade currently has a solid interest coverage ratio of 5.6. In addition, it has net debt of $909 million, which is 92% of the current market capitalization of the stock and hence it is manageable.
Considering the significant progress made in terms of reducing debt, the trust may resume raising its distributions in the years to come, as it can easily afford to. Alternatively, management could choose to maintain the current rate of monthly payouts and instead allocate capital towards growth opportunities and further deleveraging.
The latter scenario seems more plausible, especially given that interest rates remain high and that the units of Chemtrade are already attached to an above average 5.9% dividend yield.
Final Thoughts
Chemtrade has a commendable track record of paying monthly distributions, although the reduction in 2020 revealed some imprudent capital allocation by the management in the past decade.
Nevertheless, we think that Chemtrade still offers a compelling option for income-oriented investors seeking dependable and frequent payouts. With visible organic growth avenues to capitalize on, significant progress made in deleveraging in recent quarters, a comfortable payout ratio, and a generous yield of 5.9%, the trust’s investment case seems particularly appealing.
Don’t miss the resources below for more monthly dividend stock investing research.
- The Monthly Dividend Stocks List
- 20 Highest Yielding Monthly Dividend Stocks
- 10 Cheapest Monthly Dividend Stocks
- 10 Safest Monthly Dividend Stocks
- 3 Top ‘Hold Forever’ Monthly Dividend Stocks
And see the resources below for more compelling investment ideas for dividend growth stocks and/or high-yield investment securities.
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 4%+ dividend yields
- Blue Chip Stock: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more