Building wealth has a doubly favorable meaning for June High Yield of the Month recommendations Bird Construction Inc (TSX: BDT, OTC: BIRDF) and IBI Group Inc (TSX: IBG, OTC: IBIBF): Both companies are growing rapidly in the infrastructure design and construction business, and they’re sharing rising profits with shareholders as robust dividends.

Since the 2008 crash private-sector infrastructure work has been tough to come by, both in North America and globally.

Even in Canada–where the recession was mild–industrial companies have pulled in their horns to strengthen balance sheets. Office construction has stagnated, with the only exceptions a few odd projects like Encana Corp’s (TSX: ECA, NYSE: ECA) massive The Bow office building in Calgary. The crash was felt greatest in the oil sands region, where capacity went overnight from acute shortage to glut.

As a result, both Bird and IBI had to find alternatives to maintain profitability. Bird turned mostly to government work in Canada, with a focus on provincial projects including schools and other facilities.

IBI also focused on government projects but began to extend its reach in earnest to the far corners of the globe.

Both companies’ success the past three years-plus is a testament to management’s ability to tack while sticking to the strengths that have long made them successful. Bird has won contracts to build a wide range of projects from government offices and installations to schools.

IBI, meanwhile, has snagged design and project management business in the US, China, India, Eastern Europe, the Middle East and South America, particularly Brazil, as well as in its home country.

During the first quarter, public-sector work accounted for 58 percent of Bird’s revenue and 69 percent of IBI’s. The numbers are similar for order backlog, which measures future revenues from contracts already in place.

Despite the focus on sovereign debt and budget balancing in Europe and North America, public-sector work will continue to be important for both companies going forward.

Bird’s recent public sector wins include the renovation of a facility used by Special Services of Children and Youth in Winnipeg, awarded by Manitoba Health last month. In addition, the City of Airdrie, Alberta, awarded the company a contract to build the Genesis Recreation Centre Phase III, including twin hockey rinks and related facilities.

IBI’s largest ongoing projects include planning 10 underground stations for the LRT Red Line train system in Tel Aviv, Israel, the Glasgow Southern General Hospital in Scotland and Women’s College Hospital in Toronto. And the company has a large number of ongoing and potential bids for education and health facilities in its expanding array of markets.

These wins demonstrate both companies’ success getting government business in the current environment, despite fierce competition for it. And their growing size increases their ability to compete for more of it.

IBI in particular has been successful growing scale through acquisitions of smaller and mostly privately held niche infrastructure businesses and integrating them into its global network. That’s also a trend set to continue, particularly as the company pursues business outside Canada.

The truly good news for both Bird and IBI, however, is increasingly coming from the private sector. The depression in the US housing market, for example, has been a drag for IBI’s design business here. But as Chairman Phil Beinhaker pointed out in the company’s first-quarter conference call, “there are signs the real estate sector is enhancing and there’s also development starting to take place in office buildings.”

Recent wins for IBI include contracts for a major office building in Montreal, a multi-story housing project in New York and a “big” condominium project in San Francisco.

The company is currently generating CAD50 million to CAD55 million in fee-based revenue from this business, which it’s expanding in China as well.

Before the 2008 crash Bird did a very healthy business in Canada’s private sector and had built a strong presence in the then fast-growing energy patch. That core is still there.

But it’s been dramatically enhanced by the company’s August 2011 acquisition of rival HJ O’Connell.

As the latter was focused almost exclusively on Eastern Canada, the deal involved no overlap of territory. And given the very real differences between the east and west when it comes to Canada’s economy, the combined expertise was also very complementary, to the extent that both companies’ pre-merger executive and management teams are still basically intact.

O’Connell’s expertise in mining paid off in May with the award of a contract from giant metals producer Vale SA (NYSE: VALE) to construct the residue storage dam for a nickel processing plant located in Long Harbour, Newfoundland. Meanwhile, its geographic reach was critical to winning Bird a contract to build a new prepared meat processing facility in Hamilton, Ontario.

At the same time, business is picking up in the oil sands region. In May Bird won the contract to build earthworks, concrete foundations and underground piping for the Voyageur Upgrader Project north of Fort McMurray, Alberta. Completion is expected by spring of 2013 for customers are Suncor Energy Inc (TSX: SU, NYSE: SU) and the Canadian unit of Total SA (NYSE: TOT). Both of these companies have big plans in oil sands, which should ensure more business down the road for Bird.

Bird has also won the business of giant global retailer Wal-Mart Stores Inc (NYSE: WMT) for the expansion and renovation of an existing store in Winnipeg. That’s in addition to a deal to build and renovate a theater in that city, with expected completion later this year.

Bird’s success winning both private- and public-sector business was clearly evident in its first-quarter earnings, which I highlighted in a May 17 Flash Alert. And management made the most powerful statement possible that growth would continue, lifting the monthly dividend by 9.1 percent this spring.

I also highlighted IBI’s first quarter results in the May 17 Flash Alert, which included its second-highest quarterly revenue to date and record-high order backlog. IBI’s results did show some growing pains. And as the numbers came out when the stock market was in a selling mood, its share price fell sharply in response.

IBI’s share prices has stabilized and rebounded somewhat since then. And because the disappointing numbers are either reversible or simply the result of the company becoming a project leader, I expect full recovery later this year. As for the dividend, it’s still well covered with a payout ratio of 89 percent.

Project leaders are generally more profitable than subcontractors, and they also have more control over their success or failure. The key drawback is they get paid later, which has made it more difficult to reach IBI’s goal of reducing days working capital is tied up.

Importantly, however, management has reaffirmed the company’s profit target for 2011 as well as long-term goals for growth.

That’s 6 percent to 8 percent in organic revenue and profit growth–i.e., excluding the impact of acquisitions–and getting cash flow margins back to 15 percent by the end of 2012.

That will put the company in line to resume dividend growth, though probably not until sometime in 2013.

What can go wrong at Bird and IBI? Neither company earns a perfect “6” under the Canadian Edge Safety Rating System for one major reason: Construction and design are not utility-like businesses.

No matter how well Bird and IBI manage the ups and downs, there will always be some impact on cash flows from the level of economic activity and therefore on their potential to grow dividends.

In Bird’s favor is the fact that it has no debt. But it must maintain hefty cash balances in order to compete for major projects. Its financial power is a major advantage over smaller rivals, who face huge barriers to entry.

But management must maintain highly conservative financial policies.

IBI’s current debt load is largely the result of recent acquisitions, and it is making progress paying it down. Fortunately, there are no maturities until a CAD46 billion convertible bond comes due on Dec. 31, 2014. That security will be out of the money unless IBI stock hits a price of CAD19.17 per share between now and then. That’s a level the stock hasn’t achieved since before the 2008 crash, when it was still an income trust.

IBI is certainly capable of revisiting those heights, particularly as it’s arguably now a far more valuable franchise than it was four years ago. Until there’s some settling of global economic worries, however, the stock is likely to trade at some sort of discount to other Conservative Holdings, in large part because it does business in so many countries.

On the plus side, as CEO Beinhaker puts it, “we don’t have much in Europe” outside the British Isles. And even there, the exposure is basically limited to health, education and science buildings, and it extends only so long as a project is ongoing. There are 15 people in Greece working on roads wholly financed by tolls. That’s far less than 1 percent of overall revenue, and IBI already has plans to redeploy the personnel elsewhere.

Probably the most important market for IBI’s future growth is the US (22.6 percent of revenue), where it has both secure contracts and the ability to ramp up on any increase in activity. All of these operations were acquired during hard times, meaning they’re both stress-tested and were purchased on the cheap. And despite the still-jagged economic recovery in the US, they are indeed growing, with revenue up 30.2 percent in the first quarter from last year and net income surging 136.8 percent.

A severe economic relapse in the US and globally would have less of an impact on Bird than IBI, since it’s purely focused on Canada. Both companies, however, will have a better time realizing their ambitions for building wealth if the global economy continues to grow.

Both did weather the 2008 crisis without cutting dividends. And they’re both better diversified as businesses and stronger financially than they were then. That positions them even better to sustain in any future crisis, or if the current turmoil worsens.

More important, both Bird and IBI are in prime position to accelerate growth when conditions do improve, even as they continue to pay reliable dividends.

Bird Construction is a buy up to USD14.50 for anyone who doesn’t already own it. IBI Group is a buy all the way up to USD15.

For more information on Bird Construction and IBI Group, go to How They Rate. Both companies are tracked under “Business Trusts.” Click on their US symbols to see all previous writeups in Canadian Edge and CE Weekly. Click on the Toronto Stock Exchange (TSX) symbol to go to their Google Finance pages for a wealth of information, ranging from news releases to price charts. Click on their names to go directly to company websites.

Bird is a mid-sized company with a market capitalization of CAD590 million, and there should be plenty of liquidity on both sides of the border. IBI is somewhat smaller at CAD191.6 million.

The stock is widely enough held in the US and Canada for adequate liquidity, though as we saw on May 14 a relatively small spike in volume can create a lot of volatility.

Investors can buy both stocks either on the home Toronto market or over the counter (OTC) with the symbols BIRDF and IBIBF, respectively.

As is the case with all stocks in the Canadian Edge coverage universe, you get the same ownership whether you buy in the US or Canada.

These stocks are priced in and pay dividends in Canadian dollars. Appreciation in the loonie will raise dividends as well as the value of your shares.

Dividends of both companies are 100 percent qualified for US income tax purposes. Both are former income trusts. Bird converted to a corporation in January 2011 without cutting its distribution.

IBI converted at the same time and adjusted its distribution downward to reflect new taxes by approximately 31 percent to the current rate of CAD0.092 per month.

Canadian investors enjoy favorable tax status for both companies, as they do for all Canadian corporations. For US investors, dividends paid by either company into a US IRAs aren’t subject to 15 percent Canadian withholding tax, though they are withheld at a 15 percent rate if held outside of an IRA.

Dividend taxes withheld from US non-IRA accounts can be recovered as a credit by filing a Form 1116 with your US income taxes. The amount of recovery allowed per year depends on your own tax situation.