This first appeared as 1 of 3 top Canadian dividend ideas for October 2017 in the Seeking Alpha Marketplace service DGI Across North America.
Altagas’s (TSX:ALA) share price surely looks like it’s turning around after management hiked its dividend for December. Specifically, the dividend increase was nearly 4.3%. That doesn’t sound much until you hear that the company now offers a ~7.5% yield.
Don’t be spooked by Altagas’s big yield, though.
Is Altagas’s Dividend Safe?
The company is working on a big acquisition, which requires lots of resources. It also plans to sell some of its assets to fund the acquisition. By investing in internal projects, at least some of the lost cash flow will be replenished.
Altagas is devoted to paying out 50-60% of its cash flow as the dividend. Moreover, the dividend is largely backed by long-term contracted cash flow. Altagas’s investment-grade balance sheet also helps.
Altogether, Altagas should be able to maintain its dividend.
AltaGas Ltd. (TSX:ALA) is expected to acquire WGL Holdings, Inc. (NYSE:WGL) by the end of the second quarter of 2018. AltaGas shares reacted by declining 6.4% and the stock now yields 6.7%.
Should you buy, hold, or sell AltaGas? What kind of returns can you expect from an investment today?
The acquisition still require approvals from WGL shareholders, and some regulatory and governmental bodies before it can be closed.
Why is WGL Holdings a fitting acquisition for AltaGas?
WGL is a holding company with almost 170 years of history and is awarded a high S&P credit rating of A+. Primarily, it consists of Washington Gas and Hampshire Gas, which are regulated gas utilities that represent roughly 77% of WGL’s assets.
WGL will immediately double AltaGas’s rate base and triple its customers in its utility segment and increase its gross capacity to about 1,900 MW for its power segment.
Additionally, WGL provides about C$925 million of investment opportunities in the midstream segment, on top of the C$1.2 billion AltaGas originally planned, through 2019, totaling C$2.1 billion of capital investments.