Monthly Dividend Stock in Focus: ChemTrade Logistics Income Fund

Printed on April 4th, 2023 by Nikolaos Sismanis

Traders in search of a dependable and regular revenue stream could profit from investing in corporations that pay month-to-month dividends. This may be extremely helpful by way of enhancing predictability and minimizing the uncertainty of a inventory.

That mentioned, there are simply 86 corporations that presently provide a month-to-month dividend cost, which may severely restrict the investor’s choices. You may see all 86 month-to-month dividend paying names right here.

You may 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 title that we’ve not but reviewed is ChemTrade Logistics Revenue Fund (CGIFF), a Canadian-based belief that operates within the chemical compounds business. At present, the inventory is producing a yield of seven.8%, which is nearly 5 instances greater than the 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 choice for income-oriented buyers.

This text will consider the belief, its enterprise mannequin, and its distribution to see if ChemTrade Logistics might be a very good candidate for buy.

Enterprise Overview

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

The SWC section focuses on a spread of merchandise, together with Sulphur-based, water remedy, and specialty chemical compounds. As a number one provider of inorganic coagulants for water remedy in North America, ChemTrade’s SWC section generated roughly 60% of the belief’s whole revenues final yr.

However, the EC section primarily produces and markets Sodium Chlorate and Chlor-Alkali merchandise. ChemTrade is a big 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 crucial in supporting numerous processes in industries like metal, oil & gasoline, water remedy, and pulp & paper. Final yr, the EC section generated the remaining 40% of the belief’s whole revenues.

Supply: Investor Presentation

In fiscal 2022, Chemtrade benefited from elevated demand for its chemical compounds and rising commodity costs, resulting in revenues reaching an all-time excessive stage of C$1.81 billion. This represents a outstanding progress of 32.1% in comparison with fiscal 2021.

On account 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 vital progress in its profitability metrics. Its Adjusted EBITDA hit a brand new report of C$430.9 million, a rise of 53.7% year-over-year, whereas the belief’s distributable money after upkeep CAPEX landed at C$215.1 million, up 155.8% year-over-year.

For fiscal 2023, ChemTrade’s administration stays extremely optimistic, seeing continued power throughout each of its enterprise segments. Consequently, the belief not too long ago reaffirmed its fiscal 2023 adjusted EBITDA steering of $360.0 million to $400.0 million.

The midpoint of this vary would characterize the second-highest stage the belief has ever generated, trailing solely its report 2022 outcomes. Actually, following very robust efficiency through the first couple of months to 2023, the belief now expects to exceed the mid-point of this vary.

Development Prospects

ChemTrade has achieved vital progress in its historical past, with its revenues and EBITDA rising at a compound annual progress charge (CAGR) of seven.0% and 11% over the ten years, respectively. This progress was achieved by way of a mix of accretive acquisitions, strategic divestments, and natural progress.

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 similar time, ChemTrade divested Aglobis, a smaller sulfur and sulphuric acid advertising enterprise.

Relating to natural progress, the corporate expects its present enterprise to learn from the ever-increasing demand for semiconductors. The CHIPS Act is predicted to maintain driving progress within the semiconductor progress business, with a number of new semiconductor fabrication crops underneath development within the U.S. Thus, ChemTrade, being the most important provider of UPA (Ultrapure Acid) in North America, is predicted to proceed experiencing elevated demand.

Moreover, growing laws and inhabitants progress 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 remedy in North America.

Dividend Evaluation

In keeping with its aim 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 progress appear spectacular at first sight, which can increase questions on why the corporate wanted to scale back its month-to-month distribution. Nevertheless, it needs to be famous that ChemTrade distributed most of its earnings and that its progress was primarily pushed by acquisitions financed by way of debt and fairness issuance.

Because of elevated curiosity bills and dilution from distributing to a bigger variety of items, ChemTrade discovered itself in a troublesome place that necessitated a discount in its month-to-month distribution so as to enhance its steadiness sheet.

The belief has achieved outstanding progress in that regard, as its internet debt/LTM (Final Twelve Months) Adjusted EBITDA has already declined from 6.1X in Q2-2021 to 2.2X in This autumn-2022. The payout ratio additionally improved dramatically following the distribution lower, standing at 30% of distributable money in 2022.

Supply: Investor Presentation

Contemplating the numerous progress made by way of lowering debt, it might be that the belief will resume growing its distributions within the years to return, as it will probably simply afford to. Alternatively, administration might select to keep up the present charge of month-to-month payouts and as a substitute allocate capital in the direction of progress alternatives and additional deleveraging.

The latter situation appears extra believable, particularly provided that rates of interest stay on the rise and that ChemTrade’s items are already hooked up to a sexy 7.8% yield.

Ultimate 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 expect that ChemTrade nonetheless provides a compelling choice for income-oriented buyers searching for reliable and frequent payouts. With seen natural progress avenues to capitalize on, vital progress made in deleveraging in current quarters, a cushty payout ratio, and a beneficiant yield of seven.8%, the belief’s funding case appears significantly interesting.

In case you are excited by discovering extra high-quality dividend progress shares appropriate for long-term funding, the next Positive Dividend databases can be helpful:

The key home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: