ALGONQUIN POWER & UTILITIES CORP. $10.72(Toronto symbol AQN; Shares outstanding: 255.8 million; Market cap: $2.8 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.8%; www.algonquinpower.com) has tripled in size in the past three years, mostly through acquisitions.
The company’s regulated utility businesses now provide water, electricity and gas to over 560,000 customers, up sharply from 120,000 three years ago. Its hydroelectric, thermal energy, solar and wind plants generate 1,050 megawatts, up from 460.
Emera (Toronto symbol EMA) owns 20.9% of Algonquin. It is a recommendation of The Successful Investor, our conservative growth advisory.
In the three months ended December 31, 2015, Algonquin’s revenue rose slightly, to $260.3 million from $259.3 million a year earlier. Cash flow per share rose 11.1%, $0.30 from $0.27.
Algonquin recently announced its biggest acquisiton to date: the $3.4-billion purchase of Empire District Electic Co. Empire is based in Missouri, and serves over 218,000 customers through eight power plants with 1,326 megawatts of generating capacity. Subject to regulatory approvals, the deal should be completed in early 2017.
Growth by acquisition—particularly rapid growth—adds risk. But Algonquin cuts that risk by buying profitable utilities. It also ensures its renewable energy projects sell their power under long-term government-guaranteed contracts. In the case of Empire, its customer rates are set by utility regulators to guarantee profits for the company.
The stock trades at 8.4 times its forecast 2016 cash flow of $1.28 a share. The shares yield 4.8%.
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