We strongly recommend this company due to its highly sustainable dividend yield, even though the stock is down from its February 2021 peak after severe winter weather damaged its wind and solar operations in Texas.
That temporary setback doesn’t detract from the long-term value. Recent acquisitions have expanded the company’s presence outside of North America and have immediately added to its cash flow.
Moreover, its renewable energy projects sell power under long-term government-guaranteed contracts. Predictable cash flow provides plenty of room for its dividend to keep growing, which is why it’s one of our top picks.
ALGONQUIN POWER & UTILITIES CORP. (Toronto symbol AQN; www.algonquinpower.com) has two main businesses: the Regulated Services Group provides regulated electricity, gas, water distribution and wastewater collection services to 1.9 million customers in Canada, the U.S., Chile and Bermuda; and the Renewable Power Group produces electricity from about 40 clean-energy plants in North America.
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The company also owns 44.2% of the U.K.-based Atlantica Yield plc (Nasdaq symbol AY). Its renewable energy assets are in Europe, both North and South America, and Africa.
With the July 2021 payment, Algonquin will raise your quarterly dividend by 10.0%. Investors will receive $0.1706 U.S. a share instead of $0.1551 U.S. The new annual rate of $0.6824 U.S. yields a solid 4.0%.
The company’s dividend has increased an average of 10.0% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average.
Algonquin continues to expand outside of North America. In October 2020, it acquired 53.5% of Empresa de Servicios Sanitarios de Los Lagos S.A. (“ESSAL”), a water utility in Southern Chile. It has now increased that stake to 64%. In all, Algonquin paid $110.3 million (all amounts except share price in U.S. dollars). ESSAL has 48 potable water production systems and 29 sewage plants.
In November 2020, Algonquin paid $365 million for Bermuda Electric Light Company Limited, the island country’s sole electric utility. Bermuda Electric supplies power to 36,000 customers.
While expanding by acquisition adds risk, particularly in foreign countries, Algonquin’s new operations are rate regulated; they also immediately added to its earnings.
Algonquin’s revenue in the three months ended March 31, 2021, jumped 36.4%, to $634.5 million from $464.9 million a year earlier. That beat the consensus forecast of $560.8 million.
Excluding unusual items, earnings in the quarter gained 20.5%, to $124.5 million from $103.3 million. The company sold shares to finance its latest acquisitions, which is why per-share earnings rose just 5.3%, to $0.20 from $0.19. That missed the consensus estimate of $0.21.
Between 2021 and 2025, the company plans to spend $9.4 billion on upgrades to its existing businesses. The cash flow from those investments should let Algonquin keep raising your dividend.
Those investments should also lift Algonquin’s earnings by roughly 15% to $0.71 U.S. a share. The stock trades at a reasonable 22.7 times that forecast. Moreover, it also trades at an attractive 13.7 times its projected 2021 cash flow of $1.17 U.S. a share.
Recommendation in Dividend Advisor: Algonquin Power & Utilities Corp. is a buy.
Comments
Chris
One has to wonder how much of the “sustainable dividend growth” is tied to subsidized contracts? I appreciate we are in the Biden era of throwing money at anything that feels green – I just wonder if there will be a time when economics and value differences between green energy sources will make winners and losers just like in the carbon days.
Thanks for your comment. Governments continue to support renewable energy with subsidies, including long-term contracts—and that includes the Biden administration. We think overall that’s a plus for top renewable stocks.
Learn everything you need to know in
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X No, I don’t want to make steady income from dividends.
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One has to wonder how much of the “sustainable dividend growth” is tied to subsidized contracts? I appreciate we are in the Biden era of throwing money at anything that feels green – I just wonder if there will be a time when economics and value differences between green energy sources will make winners and losers just like in the carbon days.
Thanks for your comment. Governments continue to support renewable energy with subsidies, including long-term contracts—and that includes the Biden administration. We think overall that’s a plus for top renewable stocks.