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Sometimes it pays to be lazy.
Tetra Tech, Inc. ($TTEK) is a stock I meant to review last year but never got around to. Since then, shares have traded flat, even as the company increased its dividend by 10.8%.
Investors interested in Tetra Tech today are getting the same business at roughly the same price, but with a higher starting yield.
Tetra Tech is a consulting and engineering services firm focused on water management, environmental solutions, and sustainable infrastructure. Its projects span a wide variety of sectors that might not immediately come to mind. For example, the company holds construction contracts with the U.S. Department of Defense, including the Air Force, Space Force, and Navy.
Tetra Tech also works with mining companies and the U.S. government to develop exploration and extraction plans for gold, copper, and rare earth metals. In addition, it helps design water and cooling solutions for data centers.
The firm also partners with utility companies such as water treatment plants, and Tetra Tech is even consulting on a nuclear reactor project being developed in Ontario, Canada.
This is a business tied to many cutting-edge technologies, yet it’s also well-established, with roots dating back to 1966.
On valuation, the stock trades at a price to earnings ratio of 20.5, making it cheaper than the S&P 500. Tetra Tech has also delivered a market-beating 10-year average annual total return of 18.84%.
The starting yield is low at just 0.91%. However, Tetra Tech’s 5-year compound annual dividend growth rate is an inflation-beating 13.84%. Additionally, its payout ratio of 19.35% means the dividend is well-covered and has plenty of room for future growth.
Tetra Tech isn’t a high-yield stock, but it is a market-beater providing essential infrastructure for emerging technologies like AI, as well as critical defense-related projects.
While many pure-play stocks in these sectors trade at premium valuations, Tetra Tech is priced below the S&P 500 despite its superior long-term returns.
Even if dividend growth slows to a more conservative 10% annually, a new investor’s yield on cost would double in about seven years. That would still result in a relatively low yield of around 1.82%, but the firm’s dividend growth rate outpaces many pure-play tech, mining, defense, and utility stocks.
Personally, I’d be interested in acquiring shares as a long-term growth and income investment.
The low starting yield is offset by rapid dividend growth, and Tetra Tech combines market-beating performance with a reasonable valuation. With shares essentially flat over the past 12 months, there’s still time for interested investors to buy.
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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.
