Is WSP Global Stock a Buy for its 0.6% Dividend Yield?

Here’s why investors should look beyond WSP Global stock’s tiny dividend yield.

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When it comes to investing for income, a 0.6% dividend yield might seem far too low to catch the attention of most income-focused investors. After all, many investors look for steady dividends as a way to generate reliable income. But WSP Global (TSX:WSP), a leader in the global engineering and infrastructure space, might surprise you. Despite its modest yield, the stock has proven to be a top performer for long-term investors. In fact, its dividend yield today is a direct result of remarkable share price appreciation over the past decade, making WSP Global an interesting candidate for investors.

A dividend history reflecting solid stock price growth

The 0.6% dividend yield may be modest in comparison to other high-yield stocks, but it’s important to recognize the context. WSP Global has maintained the same dividend payout since 2012, when the yield was significantly higher – around 7.5%. That large yield, however, was primarily a result of the underappreciated stock at the time. The reason the yield is now so low is simple: WSP’s share price has skyrocketed, fueled by impressive growth in both its revenues and earnings.

Since 2013, the stock has posted an astounding compound annual growth rate (CAGR) of around 24%. For investors who bought in early, that means a return that has multiplied their initial investment nearly 13 times. In practical terms, a $10,000 investment in WSP Global in 2013 would be worth over $131,000 today. That kind of return is hard to ignore, especially when combined with the stability of consistent dividends.

For long-term investors, this creates an interesting opportunity. With the WSP stock price surging, investors could sell a portion of their holdings to realize a partial gain while still holding onto the rest for future growth. Alternatively, the capital gains could be reinvested into a higher-yielding stock. While market corrections – like the 30% drop during the 2020 pandemic – are always possible, the long-term potential of WSP Global remains strong.

Strong financials and growth prospects make WSP Global a buy

Beyond its historical performance, WSP Global continues to show solid fundamentals and a robust outlook. Despite the high price-to-earnings (P/E) ratio, which currently hovers around 30.9, analysts are still bullish on the stock. In fact, the stock’s 12-month target price is estimated to be over $271 per share, representing a 12% upside from its current price. For a company with a proven track record of growth and resilience, this presents a potential opportunity for both new and existing investors.

WSP Global’s recent earnings report only reinforces its strong position in the market. Year-to-date, the company has seen revenue growth of 7.3%, reaching $11.5 billion. Adjusted EBITDA, a cash flow proxy, grew by 11% to nearly $1.6 billion, supported by a margin expansion of 0.5% to 17.7%. These solid results reflect strong demand for WSP Global’s services and its ability to adapt in a rapidly changing market. The company’s backlog of projects has also risen 3.9% year-over-year, totalling $14.8 billion – a sign that future growth is likely to remain robust.

For 2024, WSP Global projects net revenue growth of approximately 9.6% and a 12.8% increase in adjusted EBITDA. These forward-looking estimates suggest that the company has a healthy outlook with its growth trajectory intact. Given its steady dividend payouts and solid growth prospects, WSP Global may be a logical choice for investors who are willing to look beyond short-term yield for long-term gains, especially if investors are able to grab shares on a dip.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned. The Motley Fool recommends WSP Global. The Motley Fool has a disclosure policy.

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