Cameco (CCJ 4.55%), the world's second-largest uranium miner, is attracting significant attention as the nuclear energy market expands again. Over the past five years, its stock surged nearly 750% as the S&P 500 rose less than 80%. The rally was driven by surging uranium prices, which finally recovered from a decade-long slump following the Fukushima disaster of 2011.
Cameco's market-crushing gains were impressive, but most investors probably didn't pay too much attention to its paltry forward dividend yield of 0.15%. However, I believe the company can easily raise that payout and become a high-yield energy stock.
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Why is Cameco growing again?
Cameco operates uranium mines and mills across Canada, the U.S., and Kazakhstan. From 2011 to 2021, its annual revenue plunged from $2.4 billion to $1.2 billion.
In response to the Fukushima disaster, many countries paused their nuclear energy projects. As a result, uranium's spot price plummeted from a peak of $136 per pound in June 2007 to just $18 per pound in November 2016. Cameco and its industry peers temporarily shuttered their largest mines to cut costs as that demand dried up, and their revenues shriveled.
NYSE: CCJ
Key Data Points
But as of this writing, uranium's spot price has risen back to $94 per pound. That recovery was driven by the rapid expansion of the power-hungry cloud and AI markets, which prompted countries to restart their nuclear projects; the development of safer, more power-efficient reactors; geopolitical conflicts in uranium-rich regions; and previous mine closures, which further tightened uranium supply. Cameco reopened its biggest mines as uranium's spot prices rose, but the demand continues to outstrip its supply.
Cameco also partnered with Brookfield Asset Management (BAM 1.73%) to acquire Westinghouse Electric, a nuclear power plant designer and builder, in 2023. Its 49% stake in the company is reducing its dependence on volatile uranium prices.
From 2021 to 2024, Cameco's revenue grew at a CAGR of 29%. From 2024 to 2027, analysts expect its revenue and EPS to increase at CAGRs of 9% and 91%, respectively.
Why could it eventually pay a monster dividend?
Cameco's dividend is tiny, but its trailing payout ratio of 13% gives it plenty of room for future hikes. That might seem like a risky call for a cyclical stock, but Citi analysts expect uranium's spot price to continue rising to at least $100 per pound this year.
That recovery, along with Cameco's diversification of its business through Westinghouse, could generate a lot more cash for the company to raise its dividends. A higher dividend should also limit its downside potential if the uranium market cools off again.
