Monthly Dividend Stock In Focus: Chorus Aviation

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Monthly Dividend Stock In Focus: Chorus Aviation


Updated on August 13th, 2021 by Bob Ciura

Monthly dividend stocks are unique in their ability to generate consistent dividend income for their shareholders. There are not many monthly dividend stocks. But they could be appealing for certain income investors, such as retirees, who desire more frequent payments than the traditional quarterly dividend payers.

With this in mind, we created a downloadable spreadsheet of all monthly dividend stocks in our coverage universe. You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yields and payout ratios) by clicking on the link below:

 

Every year, we individually review all the monthly dividend stocks we cover. Chorus Aviation (CHRRF) is the last entry in the 2021 Monthly Dividend Stock In Focus series.

Chorus Aviation has had a difficult past few years, with conditions becoming particularly difficult in 2020 due to the coronavirus pandemic. As a result, the company suspended its dividend last year, and has not yet reinstated the dividend. When it does, we expect it to return to being a monthly dividend stock with a high dividend yield.

Business Overview

Chorus Aviation Inc is a relatively small Canadian aviation company, providing a range of aviation services including: contract flying, aircraft leasing, and maintenance, repair, and overhaul services. Through a longterm contract, CHRRF provides substantially all the flight operations for Air Canada Express, and is contracted through to 2035.

Chorus has a predictable revenue stream, with 90%+ of annual revenues secured through longterm contracts and strong relationships CHRRF also provides regional aircraft leasing to 16 other airlines, for a total of 64 aircraft. CHRRF generated $752 million USD in revenue for 2020 and has a current market cap of $602 million USD

It should be noted that Chorus Aviation is an international stock that trades on the Toronto Stock Exchange under the ticker CHR. Its U.S.-traded shares have the ticker symbol CHRRF. The stock has a market capitalization of approximately $600 million.

It should also be noted that U.S. investors face a 15% withholding tax on dividends paid by Canadian companies. This withholding tax is waived if shares of Canadian companies are held in approved retirement accounts, such as an IRA.

Growth Prospects

Investors can often gather a sense of a company’s ability to grow organically by considering its historical performance. All else being equal, companies with long track records of growth are more likely to continue growing looking forward.

Chorus Aviation’s financial performance leaves much to be desired. On May 12th, Chorus Aviation reported first quarter results. CHRRF generated adjusted net income of USD $13 million, a 34% decrease compared to last year due to a decrease in adjusted EBITDA, and an increase in net interest costs and realized foreign exchange losses.

On a per share basis, CHRRF generated USD $0.08 in the first quarter. Adjusted EBITDA fell 5.1% to roughly USD $70 million compared to the first quarter of 2020.

Despite the significant troubles in the airline sector, Chorus’ portfolio of leased aircraft is holding up well. Aircraft leasing revenue increased yearoveryear due to an additional 9 CRJ900 aircraft in the portfolio. Chorus collected 62% of lease revenue billed in the first quarter.

The company’s airline customers are facing unprecedented challenges due to the coronavirus pandemic, the duration of which is unknown, but traffic trends and regional aircraft utilization have improved from their low points.

Competitive Advantages & Recession Performance

Chorus Aviation operates in the airline industry, a sector of the stock market that is notorious for its inability to endure economic downturns.

Chorus Aviation follows this pattern. This can be seen from the company’s earnings-per-share history before, during and after the last recession.

The company experienced wild swings in profitability during this time period. Investors looking for stable earnings-per-share growth are likely to be disappointed with Chorus Aviation.

The company’s dividend history is also very choppy. Since Chorus Aviation’s initial public offering in 2006, it has reduced its dividend multiple times. While there are certainly companies that can recover from the negative effects of a dividend cut, we prefer to invest in businesses with long histories of steadily rising dividends (such as the Dividend Aristocrats).

Chorus Aviation’s track record of dividend cuts means that we hesitate to recommend this stock for income investors. On the positive side, the company has reasonable leverage, and management sees growth opportunities in the aircraft leasing segment of the business.

Furthermore, they have a long-term relationship with Air Canada, and a newly negotiated contract going through 2035. The structure of the contract provides some stability to their revenue stream. In all, we expect underlying growth of 3% per year for Chorus Aviation over the next five years.

Valuation & Expected Returns

Using the current share price of US$3.06, the stock is trading with a price to earnings ratio of 9.6. Chorus Aviation’s current price-to-earnings ratio is slightly above its average. Since 2016, the stock has traded at a price-to-earnings ratio of 8.8.

We assign a 2026 P/E ratio target of 8.3 for Chorus Aviation. This is slightly below its five-year average, given the difficulties of the aviation industry. A declining valuation multiple could reduce shareholder returns over the next five years.

Since the stock still does not pay a dividend, shareholder returns are expected to be relatively suppressed, as earnings-per-share growth will be roughly offset by the declining valuation multiple.

Investors should note that Chorus Aviation’s track record suggests that it is far from a high-quality business. Chorus Aviation is an example of a high risk investment.

Final Thoughts

Prior to 2020, Chorus Aviation had two characteristics that were attractive to dividend growth investors: a monthly dividend payout, and a high dividend yield.

Related: 3 Canadian Monthly Dividend Stocks With Yields Up To 8%.

But after the coronavirus pandemic, Chorus Aviation remains fundamentally challenged. But this also looks to be among the riskier high-yield dividend stocks investors could buy. The company also has exhibited significant earnings volatility that make the stock less appealing for risk-averse income investors.

Chorus Aviation has suspended its dividend payout, and it is uncertain when (or if) the company will resume paying dividends. This makes the stock unappealing in our view.

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