Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) consists of diversified regulated utilities across natural gas, electric, and water utilities, and non-regulated renewable energy across wind, solar, hydro, and thermal generation. Its renewable and clean energy facilities are mostly under long-term contracts (averaging about 13 years) with inflation escalations.
Regulated utility Fortis (TSX:FTS)(NYSE:FTS) has a long dividend-growth streak. It has 48 consecutive years of dividend increases, which is the second-longest streak on the TSX. Because of the transition to net-zero emissions, renewable and clean energy are good places to consider investing in. Algonquin offers the best of both worlds in having regulated utilities and a renewable portfolio.
A dividend stock with a high yield
The dividend stock provides a relatively high yield of 4.8% today. According to the line of thought used in The Single Best Investment by Lowell Miller, 4.8% is a big yield because it’s 1.88 times that of the stock market yield of 2.55%. Miller thinks a yield that’s 1.5 – 2 times that of the market is high.
Utilities are a key component of solid dividend portfolios. Here are 3 utilities that provide current yields of about 3.5-4.4%. They’re fairly valued. Going through these examples will lead to an answer for the question in the title.
Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) split-adjusted funds from operations per unit (“FFOPU”) increased by 2% in 2020 during the pandemic, proving itself to be a defensive business in the face of adversity.
In the first half of the year (“H1”), BIP rebounded to growth with its split-adjusted FFOPU rising almost 19% to US$1.77. Contributing factors include an economic rebound, management taking advantage of market volatility during the 2020 pandemic market crash (such as by scooping up shares of Inter Pipeline (TSX:IPL) at basement prices), capital recycling, etc. Its H1 2021 payout ratio was 58% of FFO, which is a healthy payout ratio.
BIP remains one of our favourite utilities for income. We trust that management can live up to its word by increasing its cash distribution by 5-9% per year going forward.
This week we took the opportunity to buy the dip in Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN). The company reports in USD and pays a USD dividend. So, we’re going to discuss the dividend stock on the NYSE and in USD.
The latest dip was triggered by an equity offering of US$1 billion. The reference price for the equity units is $15.00 per common share.
AQN stock Business Overview
Algonquin consists of two business segments: regulated utilities (natural gas, electric, and water) and non-regulated renewable energy (wind, solar, hydro, and thermal). Its renewable energy portfolio primarily consists of long-term contracts that have inflation escalations. Together, its portfolio allows it to generate stable earnings and cash flow.
Buy the Dip in Renewable Energy Stocks
Year to date, the stock has pulled back along with other renewable utility stocks. Investors can also consider Brookfield Renewable Partners L.P. (TSX:BEP.UN)(NYSE:BEP) and Northland Power (TSX:NPI). However, Algonquin provides the biggest yield of the three. It has also been a little more resilient, likely due to its exposure to regulated utilities that make up about two-thirds of its business.