Category Archives: Seeking Alpha article

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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Should You Buy Shopify Today?

Growth stocks shouldn’t be taken lightly. Just look at the Shopify Inc. [TSX:SHOP](NYSE:SHOP) stock to get an idea of what I mean. It has more than tripled in the last 12 months. You can’t argue against Shopify’s outperformance, except that it hasn’t turned a profit – yet. The company is expected to start making a profit as soon as late this year.

Shopping today is different from shopping 10 years ago. Nowadays, merchants may sell their products through their online store, their physical stores, marketplaces, social media, mobile apps, and other sales channels.

Shopify “provides (merchants) with a single view of their business and customers across all of their sales channels and enables them to manage products and inventory, process orders and payments, ship orders, build customer relationships, and leverage analytics and reporting from one integrated back office”. – 2016 annual report (pdf)

Rapid growth

Shopify’s growth strategies focus on growing its merchant base. At the end of 2016, Shopify had more than 377,500 merchants from roughly 175 countries using its platform with a strong focus in the United States. This suggests there’s much room for potential international growth in the future.

From 2013 to 2016, Shopify grew its revenue at a compound annual growth rate of 98%. This year, management expects to grow its revenue by 49-54% to $580-600 million.

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When Is It The Best Time To Buy O And The Others?

If you’re looking for income, check out the triple net lease space, which has experienced a nice pullback recently. Particularly, for Realty Income Corp. (NYSE:O) and its two other peers, National Retail Properties, Inc. (NYSE:NNN) and Store Capital Corp. (NYSE:STOR), their shares have declined 14-25% in the last year.

I thought Store Capital was a good bargain at below $21 per share. Yet, in a matter of a few days, the shares have continued to fall another 5% or so.

In the last few days, all three companies have experienced pullbacks. So, there are some forces that are affecting the industry. The anticipation of higher interest rates (and rates actually rising) are some of them.

Realty Income shares have been the most resilient no matter in the price action of the last year or the last few days. This is not a surprise because as I said before, Realty Income is the bluest of the blue chips in the group.

After the pullbacks, the stocks offer decent yields of 4.6-5.8%.

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