ALGONQUIN POWER & UTILITIES CORP. $7.24 (Toronto symbol AQN; Shares outstanding: 206.3 million; Market cap: $1.5 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.7%; www.algonquinpower.com) has nearly tripled in size over the last two years through acquisitions.
Algonquin bought four companies in 2012 and another five in 2013. These moves included a $140.7-million U.S. deal for a natural gas distributor in Georgia with 64,000 clients.
The company’s regulated utility businesses now provide water, electricity and natural gas to over 470,000 customers, up sharply from 120,000 a year ago. In addition, Algonquin’s hydroelectric, thermal energy and wind facilities generate 1,100 megawatts of power, up from 460.
Emera (Toronto symbol EMA), a recommendation of The Successful Investor, our conservative growth advisory, owns 24.5% of Algonquin.
The company is benefiting from its purchases. In the quarter ended September 30, 2013, acquisitions pushed up its revenue by 37.5%, to $127.9 million from $93.0 million a year ago. Cash flow per share jumped 42.9%, to $0.10 from $0.07.
Growth by acquisition—particularly rapid growth—adds risk. But Algonquin cuts that risk by buying profitable utilities. It also ensures that its renewable energy projects sell their power under long-term, government-guaranteed contracts.
The stock trades at 8.0 times Algonquin’s forecast 2014 cash flow of $0.90 a share. It yields a high 4.7%.
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