ALGONQUIN POWER & UTILITIES CORP. $15(Toronto symbol AQN; High-Growth Dividend Payer Portfolio, Utilities sector; Shares outstanding: 490.5 million; Market cap: $7.4 billion; Dividend yield: 4.6%; Dividend Sustainability Rating: Above Average; www.algonquinpower.com) operates through two main businesses: The Liberty Power Group produces and sells electricity from 39 clean energy facilities across North America; and the Liberty Utilities Group provides regulated electricity, natural gas, water distribution and wastewater collection services.
The company last increased its quarterly dividend with the July 2018 payment. Investors now receive $0.1282 U.S. a share, up 10.0% from $0.1165 U.S. The new annual rate of $0.5128 U.S. yields a high 4.6%. The company has now increased its dividend each year for the past eight years.
Algonquin tends to fuel its growth with acquisitions, which adds risk. However, the company cuts that risk by buying profitable utilities. It also sells its power under long-term government-guaranteed contracts.
For example, in 2017 Algonquin acquired Missouri-based Empire District Electric for $3.4 billion. The firm serves over 218,000 customers through eight power plants.
Partly due to the Empire purchase, Algonquin’s revenue jumped 110.0%, from $941.6 million in 2014 to $1.98 billion in 2017. Earnings during those four years soared 230.4%, from $88.4 million to $292.1 million. The company sold shares to pay for its new operations, which is why earnings per share rose just 100.0%, from $0.37 to $0.74. Cash flow per share gained 75.0%, from $0.92 to $1.61.
Algonquin continues to expand. In 2018 it acquired 41.5% of U.K.-based Atlantica Yield plc for $953 million U.S.
Atlantica owns and operates 22 facilities; Including renewable power plants, natural gas plants, 1,770 kilometres of electric transmission lines and two water desalination plants. They are also spread across Europe, South and North America, and Africa.
As Algonquin now gets 90% of its revenue from its U.S. operations, it reports its results in U.S. dollars.
With contributions from Atlantica, its revenue rose 8.2%, to $1.65 billion U.S. in 2018. Earnings jumped 38.8%, to $312.2 million U.S., while earnings per share gained 15.8%, to $0.66 U.S. However, cash flow per share dipped 4.0% to $1.20 U.S.
In addition to its Atlantica investment, Algonquin also added 150 megawatts of solar and wind capacity in Maryland and Ontario in 2018. It also announced the acquisition of New Brunswick Gas for $331 million (Canadian).
That firm is a regulated utility with 12,000 customers in 12 New Brunswick communities. It also operates 800 kilometres of natural gas distribution pipeline in the region. Algonquin should complete the purchase in the first half of 2019.
In addition to selling new shares, the company borrows the funds it needs for its acquisitions. Algonquin’s long-term debt was $3.3 billion U.S. as of December 31, 2018, or 60% of its market cap. However, predictable cash flows from the company’s new utilities will help it service that debt. Algonquin also held cash of $46.8 million.
The company should earn $0.88 U.S. a share in 2019, and the stock trades at moderate 12.7 times that forecast.
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