About Atkore Inc.

Let’s delve into one of the smaller firms on my radar: Atkore Inc. (NYSE:ATKR), a company I commenced covering on August 27, 2023, under the moniker “Atkore: A Top-Tier Industrial Mid-Cap Play.”

Several months ago, I introduced a compelling mid-cap play with substantial exposure across a broad spectrum of non-residential, residential, construction, and industrial markets.

While Atkore’s roots reach back to the 1950s, Atkore Inc. was established as a Delaware company in 2010. It’s the parent company of Atkore International Holdings and Atkore International.

[…] Atkore operates in two core segments:

• Electrical products for the construction of electrical power systems
• Safety and Infrastructure products for critical infrastructure protection

Roughly half a year later, I’m revisiting the stock. Not only did the company just report its 1Q24 earnings, but it also initiated a dividend, which could mark the birth of a highly successful dividend growth stock.

Although I made the case in my prior article that I won’t be a buyer of ATKR due to my investment in Carlisle Companies (CSL), I’m changing my mind.

If I can get ATKR on a potential correction, I’ll happily make it a part of my dividend (growth) portfolio.

Now, let’s dive into the details!

Economic Performance

Let’s commence with the not-so-great news. Atkore is not immune to economic headwinds, as net sales for the first quarter of 2024 reached $798 million, signifying a 4% year-over-year decline.

Adjusted EBITDA declined by 19%. Net income contraction was slightly worse at negative 20%.

However, organic volume growth was a standout number, surging by an impressive 13% across all key product areas.

Despite this commendable performance, the gains were partially offset by the ongoing pricing normalization, in line with the company’s previously communicated trends.

Notably, the volume expansion was most prominent in the classic pipe and conduit category, recording high-single-digit growth, primarily driven by robust demand for PVC products.

Segment-wise, both the Electrical and S&I segments showed positive volume growth.

• However, the Electrical segment experienced margin compression, attributed to the mentioned pricing normalization, which, nonetheless, remained strong at 34%.
• On the S&I side, there was year-over-year margin compression due to cost comparisons against the prior year and planned start-up costs in Indiana aimed at supporting volume ramp-up.

Before I delve into the expected ramp-up in volumes, it’s important to note that the company maintains a robust balance sheet.

The company has no debt maturities until the 2028 fiscal year and used close to $100 million in 1Q24 to buy back stock.

Over the past three years alone, the company has bought back a fifth of its shares!

Overall, the company maintains a very healthy balance sheet, as it has just $763 million in gross debt. Adjusted for cash and cash equivalents, it has $382 million in net debt, which is just 0.4x 2024E EBITDA.

Speaking of this year’s expected EBITDA, the company is upbeat about its future, which includes the introduction of a dividend.

The Birth of a Dividend Stock

Thanks to strong free cash flow and a healthy balance sheet, ATKR introduced a dividend.

The first dividend will be $0.32 per share, which will be paid to shareholders of record on February 27, 2024.

This dividend translates to a yield of 0.9%.

At this point, you’re probably thinking something like, “So what, 0.9% won’t make a big difference!”.

Sure, a 0.9% yield means you get $90 in dividends from a $10,000 investment. That is not a lot.

However, this is just the start.

Not only does this signal that the company has a lot of confidence in its future, but we also…