Author Archives: Passive Income Earner

Should You Change Your Investing Strategy in a High Stock Market?

The market is in its nine-year bull run. I’ll use the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and iShares S&P/TSX 60 Index Fund (TSX:XIU) as representations of the markets, respectively.

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SPY Total Return Pricedata by YCharts

The annualized market returns have been about 9.5% for the U.S. market and about 7% for the Canadian market.

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SPY Annualized All Time Total Returns (Monthly)data by YCharts

It’s not surprising that the U.S. market has outperformed the Canadian market in the long run because the U.S. market is much more diversified, while the Canadian market is usually weighed down by commodity stocks, including mining companies and oil and gas producers.

All this means is that investors need to be extra careful in picking the right prices to buy those companies or the Canadian market.

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Should You Have High Yield Stocks in Your Portfolio?

Investors have different income goals, and sometimes, they’re forced to buy high-yield stocks, such as Alaris Royalty Corp. (TSX:AD), which currently offers a whopping dividend yield of 10.3%.

Investors should ask themselves why a company is paying such a high yield. Heck, even when Alaris was trading at higher levels and offered a +7% yield in 2015, it was still considered a high-yield investment.

yellow caution signs plastered on a page

How High of a Yield is Too High?

Typically, when a stock offers a yield of 6% or higher, investors should be extra careful. In my recent article on Seeking Alpha, I discussed the risks of investing in Alaris. So, I won’t go into the details of that.

Here’s a quick summary, though. Alaris lends money to companies and gets monthly cash distributions in return. Ideally, Alaris would like to partner with these companies for the long haul to get a high income from them.

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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.

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