Here are four utilities stocks producing power mostly from renewable sources. They are all ‘buys’ for long-term capital gains and attractive, growing dividend income.
Edmonton-based Capital Power Corporation (TSX—CPX) describes itself as a “growth-oriented North American power producer”. The company develops, acquires, owns, and operates power generation facilities using a variety of energy sources.
Capital Power owns nearly 6,000 megawatts (MW) of power generation capacity at 26 facilities across North America. Approximately 900 MW of owned generation capacity is in advanced development in Alberta and Illinois.
This year, Capital Power is expected to earn $1.65 a share. This would represent healthy earnings growth of nearly 38 per cent from $1.20 a share last year. In 2020, the company’s earnings are expected to advance by 19.4 per cent, to $1.97 a share. Growing earnings should attract investors seeking to profit from share price gains.
What’s more, Capital Power is raising its dividend regularly. On October 31, for instance, it began to pay yearly dividends of $1.92 a share. That’s up by 7.3 per cent from its former annual dividend payments of $1.79 a share. President and chief executive officer Brian Vaasjo said that this “is consistent with our 7% annual dividend growth guidance to 2021.”
Both earnings and dividends will grow. Capital Power is a buy for further long-term share price gains as well as attractive and growing dividends.
Fortis hikes its capital investment plan
Fortis Inc. (TSX—FTS; NYSE—FTS) has announced a five-year capital investment plan of $18.3 billion. That’s up by $1.0 billion from last year’s five-year plan. The power generation and distribution company’s consolidated rate base, or the value of property on which a utility is allowed to earn a set rate of return as determined by regulators, is projected to increase from $28 billion in 2019 to $34.5 billion in 2022 and $38.4 billion in 2024. That translates into three and five-year compound annual growth rates of 7.2 per cent and 6.5 per cent, respectively.
Fortis Inc. is a leader in the North American regulated electric and gas utility industry, with 2018 revenues of $8 billion and total assets of about $52 billion as of June 30, 2019. The company serves utility customers in five Canadian provinces, nine US states and three Caribbean countries. Its main focus is electricity, hydroelectric and gas utility operations, both regulated and non-regulated.
Despite the impact of weather on this year’s financial results, Fortis has announced a 6.1-per-cent increase in its quarterly dividend to $0.4775 a share, payable in the fourth quarter. This marks the 46th consecutive year of increased dividends, and is consistent with the company’s targeted average annual dividend per share growth of about six per cent through 2024 based on the previous annual dividend of $1.80 a share.
Utilities such as Fortis are a good choice for investors who want to add defensive stocks to their portfolio in volatile markets. Because its operations are solely in North American, it faces no direct exposure to the China-US trade war. And the trend toward environmentally responsible investing adds appeal to its shares. What’s more, low interest rates are generally favourable for utilities. Fortis is a buy for long-term growth and income.
Algonquin Power transitioning from coal
Algonquin Power & Utilities Corp. (TSX—AQN; NYSE—AQN) has achieved a milestone on its US Midwest wind development project. In June, the company received regulatory certificates to acquire, once they are completed, three Midwestern wind farms generating up to 600 megawatts (MW) of wind energy. Construction is expected to be completed by the end of 2020. The development occurs as Algonquin transitions away from coal generation.
Algonquin is a diversified international power generation, transmission and distribution utility. It provides rate-regulated natural gas, water, and electricity generation, transmission and distribution utility services to nearly 800,000 connections. It’s also a leader in renewable energy through its portfolio of long-term contracted wind, solar and hydroelectric generating facilities.
So far this year, the company’s adjusted earnings are down. For the six months ended June 30, 2019, Algonquin made an adjusted $148.7 million (all figures in US dollars unless otherwise noted), or $0.29 a share, compared with $191.9 million, or $0.42 a share, in the same period of 2018.
The decrease was primarily due to a one-time acceleration in HLBV (hypothetical liquidation at book value) income in the prior period due to US tax reform.
Despite the lower earnings, Algonquin recently raised its quarterly dividend 10.0 per cent to $0.141 a share. The robust increase reflects expectations of healthy future earnings growth.
Due to the HLBV acceleration, Algonquin will likely report lower earnings per share this year than it did last year. But earnings are expected to rebound next year and continue to rise into the next decade, thanks to a strong development pipeline and the potential for acquisitions.
The stock trades at a high 22.3 times the C$0.81 a share that Algonquin should earn in 2018. But it trades at a more reasonable 12.2 times its projected funds from operations of C$1.48 a share. The annual dividend of C$0.74 a share yields 4.1 per cent. Algonquin Power & Utilities is a buy for income and long-term growth.
Boralex Inc. focused on renewable energy
Boralex’s total power production rose 22 per cent year over year to 2,293 gigawatt hours (GWh) in the first half of this year. The French wind power segment led the growth, where power was up 47 per cent to 1,035 GWh, thanks largely to contributions from acquired and newly commissioned sites. Production at the Canadian wind power segment rose six per cent while total hydroelectric power production was up 15 per cent.
Boralex Inc. (TSX—BLX) develops, builds and operates renewable energy power facilities in Canada, France, the UK and the US. The company operates four types of power generation—wind, hydroelectric, thermal and solar.
For the six months ended June 30, 2019, Boralex’s revenues from energy sales totaled $293 million, up 19 per cent from the same period in 2018. Growth was mainly driven by the increased contributions from acquisitions and wind farms commissioned since June 30, 2018.
Boralex is targeting sectors in the renewable energy industry with high growth potential. The company’s strategic growth plan includes continued development in the European and North American markets, which are already active and which it believes offer higher growth potential for renewable energy. It also plans to strengthen its presence in the solar power sector.
The stock trades at just 5.8 times the $3.81 a share in cash flow that Boralex is forecast to earn this year. That annual dividend of $0.66 a share yields 3.0 per cent.
Boralex Inc. is a buy for long-term growth and income.
This is an edited version of an article that was originally published for subscribers in the October 2019/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
The MoneyLetter, MPL Communications Inc.
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