New business is pushing shares of this flight simulator up, up, and away.
CAE (CAE, CAE.TO)
From Dividend Advisor
The company generates value for investors as a leading maker of flight simulators for commercial and military aircraft. It also operates pilot-training schools in over 35 countries and makes mannequins and other medical-simulators for training health professionals.
Due to COVID-19’s impact on air travel volumes, many airlines cut their orders for new flight simulators. As a result, CAE suspended its $0.11-a-share quarterly dividend with the June 2020 payment.
The company is now buying the military training operations of U.S.-based L3Harris Technologies Inc. (New York symol LHX). This business makes simulators for military aircraft, unmanned drones and submarines. It also provides flight training services to the U.S. Air Force.
CAE will pay $1.1 billion U.S. for these businesses when it completes the purchase, likely in the second half of 2021.
The company expects eliminating overlapping operations will reduce its annual costs by $35 million to $45 million (Canadian) by the end of the second year. To put those amounts in context, CAE earned $60.0 million, or $0.22 a share, in the quarter ended December 31, 2020.
To help pay for this acquisition, CAE is selling a total of $700.0 million of new common shares to Caisse de dépôt et placement du Québec ($475.0 million) and Singapore’s sovereign wealth fund ($225.0 million).
The purchase will help cut the company’s exposure to the commercial airline business, which has suffered in the past year due to COVID-19 travel restrictions. However, the rollout of new vaccines should help boost air travel volumes in 2021. That would let the company resume regular dividend payments.
CAE’s TSI Dividend Sustainability Rating remains Average. The stock is a buy for long-term gains.
Patrick McKeough, Dividend Advisor, tsinetwork.ca, 888-292-0296, March 12, 2021