A Higher-Growth Utility For Your Income Needs

Recently, I got an article published about Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN). That’s right. It’s a higher-growth utility that might help to fill your income needs.

Summary

  • Algonquin is estimated to grow at a rate (of 10%) that’s double that of some its bigger peers.
  • It offers a ~4.9% yield and aims to increase its dividend at a CAGR of 10% through 2022.

Business Overview

Algonquin’s portfolio is best summed up in two parts:

1) Non-regulated electric generation assets powered by renewable and thermal energy. It has 1,545 MW of net generating capacity (68% wind, 8% hydro, 2% solar, and 22% thermal) across 38 facilities. This part of the portfolio makes up ~30% of Algonquin’s assets.

About 87% of the output from its hydro, wind, and solar facilities (i.e. ~68% of its net generating capacity) have long-term power purchase agreements with a production-weighted average remaining term of ~15 years.

2) Regulated electric, natural gas, water distribution and wastewater collection utility systems, and transmission operations serve 762,000 customers across 12 U.S. states through 33 utilities. This part of the portfolio makes up ~70% of Algonquin’s assets.

Algonquin has been benefiting from the shift to renewable power from coal. The utility has been growing its power portfolio partly by developing its own projects and partly by accretive acquisitions. Its regulated utilities continue to grow organically, and the company is also on the lookout for accretive acquisitions.

Dividend

Algonquin has increased its dividend for 7 consecutive years with a 5-year dividend growth rate of ~9.6%, and it currently offers a decent yield of ~4.9% that’s juicier than most other utilities. Management targets dividend growth of ~10% per year, which will reduce Algonquin’s payout ratio over time.

Conclusion

At CAD$12.24 per share, a P/E of ~16.5, Algonquin is a good value for a stable company that’s expected to grow its profitability by ~10% per year for the next three to five years. Let’s not forget its ~4.9% yield.

One thing I love about publishing on Seeking Alpha is the comments that follow. It seems one of the biggest concern investors have is that Algonquin recently entered the global market. It will be prudent to wait and see how that plays out.

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Disclosure: At the time of writing, I owned shares of Algonquin.

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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