AltaGas Ltd. (TSX:ALA) Now Offers A 9.6% Yield. Is It Safe?

Summary

  • AltaGas is revisiting its 52-week (and seven-year) low.
  • The company now offers a 9.6% dividend yield.
  • Is the dividend safe?

AltaGas (TSX:ALA) used a mix of debt and essentially stock for the ~CAD$9 billion WGL Holdings acquisition. The debt included a ~US$4.95 billion bridge facility. It also raised capital from the markets by selling CAD$2.6 billion of subscription receipts in Q1 2017.

The acquisition took about a year and four months to finally close in July 2018. In the process, the company had to pay interest on the debt and high dividend-equivalent payments for the receipts, which were converted to common shares when the acquisition closed.

For example, in 2017, AltaGas incurred CAD$170 million of interest expense, which was 12.6% higher than the interest expense of CAD$151 million in 2016 largely due to the financing costs of roughly CAD$19 million associated with the bridge facility.

In 2017, AltaGas paid about CAD$147.84 million of dividend-equivalent payments for the subscription receipts. In comparison, it declared ~CAD$362 million of common stock dividends and ~CAD$59 million of preferred dividends.

Recent Balance Sheet

At the end of Q2 2018, AltaGas had total liabilities of ~CAD$5.3 billion, which included total current liabilities of CAD$769 million and long term debt of ~CAD$3.25 billion. It had total assets of ~CAD$10.88 billion, which included total current assets of ~CAD$1.28 billion.

Rapid Debt Reduction: A Good Thing or Bad Thing?

To rapidly repay its debt, AltaGas has been selling its non-core assets. For example, last Monday, the …

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Disclosure: At the time of writing, I’m long TSX:ALA.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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