This consulting and engineering co is a future Aristocrat
10 consecutive years of double digit dividend increases
Our new Focus stock Tetra Tech (TTEK) just hiked its dividend for the 10th consecutive year and just did a big stock split. Not surprisingly this Future Dividend Aristocrat is trading at an all time high. Find out why strong future dividend growth looks certain for this consulting and engineering firm.
The company that we are talking about is Tetra Tech (TTEK), a global consulting and engineering firm specializing in solving complex problems related to water, environment, infrastructure, energy, and resource management. They provide services in areas such as engineering design, environmental assessments, water resource management, renewable energy, and disaster recovery, working with both public and private sectors.
What Makes Tetra Tech Unique:
Tetra Tech stands out due to its strong focus on high-end consulting services, combining technical expertise with innovative solutions tailored to each project. Their approach emphasizes sustainability, advanced technology integration, and data-driven decision-making, particularly in areas like water management and environmental remediation. The company's deep understanding of both engineering and environmental sciences enables them to offer holistic, multidisciplinary solutions.
History:
Tetra Tech, previously named Teletech, was founded in 1966 in Pasadena, California, originally focused on water management and coastal engineering. Over the years, the company expanded into other areas like environmental science, infrastructure, and energy. Through strategic acquisitions and organic growth, Tetra Tech has evolved into one of the largest consulting firms in the world. Its consistent focus on sustainable solutions and its ability to adapt to market needs has helped it become a leader in environmental and engineering consulting.
Competitive Advantage (Moat):
Tetra Tech has a competitive moat based on several factors:
Technical Expertise: Their workforce includes over 27,000 employees, many of whom are experts in specialized fields like engineering, science, and environmental analysis.
Client Relationships: The firm has long-term contracts with key government agencies such as the U.S. Environmental Protection Agency (EPA) and the Department of Defense, which gives them a stable revenue base.
Global Presence: Operating in over 100 countries, they have the ability to mobilize resources and provide localized solutions on a global scale.
Innovation: Their emphasis on sustainability and cutting-edge technology, such as advanced data analytics and geospatial systems, provides a unique edge in a market that increasingly values innovation and eco-conscious solutions.
Stock Split
On September 9, 2024, Tetra Tech did a 5 for 1 stock split, resulting in a current stock price of less than $50 per share. The YTD gain for TTEK is a whopping 39.8% with the stock trading close to its all time high of $48.26 set on August 26, 2024.
The Dividend
Tetra Tech surely looks like a Future Dividend Aristocrat with now 10 consecutive years of double digit dividend hikes.
This year the quarterly dividend was raised by 11.5% to a split adjusted $0.058 per share ($0.29 post split). At a stock price of $46.49 the dividend yield for TTEK is 0.5%.
In the last 10 years the total dividend growth was an impressive 314%. Over the same period (since 2014) the stock price has gained more than 700%. This is what happens with more super dividend growth stocks: the dividend growth (double digits) trails the stock price. TTEK also bought back an estimated 15.5% of its outstanding shares in the last decade, despite not doing any significant buybacks in the last two years.
The interesting thing is that TTEK only uses a small piece of its growing free cash flow for dividends (see below). The earnings per share for 2023 was $1.12 vs. a current annual dividend of $0.23. It is very likely that the dividend growth will follow earnings growth. TTEK is expected to grow its earnings per share by double digits in 2024, 2025 and 2026 based on analyst estimates.
Key Financial Metrics for Tetra Tech
Forward P/E for FY 2024 (current fiscal year ending September): 36.6
Return on Invested Capital (ROIC): 14.0% for FY 2023.
EBIT Margin: 10.9% in 2023
Revenue Growth: 32.3% in FY 2023, expected to grow by 15% in FY 2024.
Balance sheet: Tetra Tech had a net debt position of $710 million at the end of FY 2023
Free cash flow: The company reported a FCF of $341.6 million in FY 2023, expected to jump to more than $500 million for FY 2026. The current annual dividend is $62 million, leaving ample room for future dividend hikes. For now TTEK seems to prefer acquisitions above a higher dividend payout.
Analyst opinion: Analysts rate Tetra Tech as a buy currently with 2 ‘strong buy’ recommendations, 3 ‘buys’ and 2 ‘hold’ recommendations. No analyst has a ‘sell’ rating on the stock.
Disclaimer: The information provided here is for informational purposes only and should not be considered financial advice. Investors should conduct their own research or consult with a financial advisor before making any investment decisions.