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The market is experiencing extreme volatility, making it difficult for investors to decide where to invest their money. In such situations, companies with a robust business model that pay regular dividends, have predictable revenues, and can generate consistent cash flows from operations are usually intelligent investments.
Companies That Generate Consistent Cash Flow
Capital Power Corp and Dollarama are two examples of companies that are both profitable and meet all of the criteria listed above. Here’s more about them:
1. Capital Power Corp (CPX)
Overview: Capital Power is a power generation company that develops, acquires, owns, and operates several power generation facilities employing different energy sources. The company has many high-quality, utility-scale renewable and thermal power generation facilities across Canada and the United States. It generates electricity from wind, solar, waste heat, natural gas, coal, and many more. It has a power generation capacity of around 6,600 megawatts at about 26 facilities. The $6.02 billion growth-oriented company also manages its related electricity, natural gas, and emissions portfolio by participating in trading and marketing activities.
Notably, CPX is one of the inflation-defiant companies in the market that has delivered exceptional performance during the first half of this year. This performance is expected to continue even in the coming years because the company is gradually positioning itself strategically as a leader in the market.
Financials: Capital Power reported its numbers for the second quarter of FY 2022, blowing the market’s expectations out of the water. Its net cash flows from operating activities and adjusted funds from operations (AFFO) were $108 million and $180 million, respectively.
For the three months ended June 2022, the company’s net income rose by a whopping 353% to $77 million or $0.59 per share compared to $17 million or $0.05 per share generated in Q2 FY of 2021. The income growth for the year’s first half was around 66% YoY. Its total revenue and EBITDA levels for the three months increased to $713 million and $319 million against last year’s $387 million and $241 million, respectively.
Electricity generation by Capital Power this time were 6,638 Gigawatt hours and 13,531 Gigawatt hours, respectively, for the three months and six-month period showing an incredible increment from 4,975 Gigawatt hours and 10,605 Gigawatt hours generated during the same period in 2021.
Future Growth: Capital Power partnered with Manulife Investment Management to acquire 50% interest in Midland Cogeneration Venture (MCV), creating the largest gas-fired cogeneration facility in North America. Other than that, it had also entered into agreements with Mitsubishi Heavy Industries Group and Kiewit Energy Group to advance the commercial application of capture and sequestration (CCS) technology at its Genesee Generating Station in Alberta.
Dividend Pay-out and Future Target: Capital Power is known for its consistent dividend payments and capital appreciation. The company has a hefty 4.5% dividend yield and a history of dividend growth for the past nine consecutive years. Its guidance says its annual dividend will continue to increase until 2025 by 5% to 6%.
Capital Power closed September 6 at $50.46. It seems fairly valued, and the hefty dividend payouts are a substantial benefit. So, the stock appears a great pick in the current volatile market.
2. Dollarama (DOL)
Overview: Dollarama operates a chain of dollar retail stores across Canada, offering various products such as general merchandise, consumables, and seasonal items. It is one of the country’s largest retailers, showing things that cost as little as four dollars or even less. The company operates over 1,400 retail stores across the country, most located in the Ontario region. It does, however, sell through its online stores as well.
So, with economists predicting a recession in the coming days and the US economy slowing down gradually, Dollarama stock will be a relatively safe growth asset this time. The discount retailer has enjoyed a renaissance after the 2007-2008 financial crisis and will continue enjoying a favorable position even if the economy dips again due to its excellent business model, attractive product pricing, market dominance, and robust demand for offerings.
Financials: Dollarama’s first quarter fiscal 2023 earnings showed the company had delivered a sales growth of 12.4% to $1.07 billion, with its comparative store sales increasing by 7.3% against the previous year. The company’s EBITDA grew 20% to $300 million, representing 28% of its revenues compared to last year’s 26%. Moreover, Dollarama’s operating income also had a positive impact and jumped 24% to $220 million during the quarter, or 20.5% of sales, as against 18.5% of sales achieved a year ago. As a result of this overall growth in the company’s operations, Dollarama’s Diluted Earnings per Share increased to $0.49 per share, which was approximately 32.4% higher than what the company reported the previous year, i.e., $0.37 per share.
This increase was driven by an increment in the total number of stores over the past 12 months, from 1,368 stores on May 2, 2021, to 1,431 stores on May 1, 2022. Further, Dollarama had also opened ten new net stores during the quarter, which is comparatively lesser than the 12 net new stores they had opened in the previous year.
Future Growth: Dollarama is working towards achieving sustainable growth. The company has amended its existing syndicated credit facilities and converted them into sustainability-linked loans having available credit of $1.05 billion. It is one of the first Canadian retailers to incorporate ESG targets into credit agreements. It wants to use it in a manner to carve out paths for its progress as well as for creating sustainable value for the shareholders. Besides, the company also wants to upsize its commercial paper program in the United States to $700 million from $500 million.
Dividend Pay-out and Future Target: Dollarama’s business can thrive in any situation, and therefore the stock can provide both capital appreciation and regular dividend payments. Even in this dull market, the company has gained more than 26% this year and about 72% in the past five years. Although its annual dividend yield of 0.28% might be much lower than what is offered in the broader market, the company has always maintained its consistency. It has also increased dividend payments at many intervals.
Dollarama is currently trading at $80.29 per share, recovering much from its 52-week low of $53.39 per share. Considering the average analyst price target of $82.90 per share, the company is still largely undervalued and shows almost a 50% upward potential. So, it is a perfect buy case.
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