A utilities stock for income and gains

Algonquin Power & Utilities is a buy. It uses its growing earnings to regularly raise its dividends and its ability to provide renewable energy should raise its share price.


AQN is a global leader in renewable energy with wind, solar and hydro-electric generating facilities.

Algonquin Power & Utilities (TSX—AQN) remains a buy for high and growing dividends. This should attract income-seeking investors unwilling to buy 10-year Government of Canada bonds that yield only 1.2 per cent. The bonds are a money-losing proposition after inflation, with the consumer price index up by 3.7 per cent in the year to July 31. These investors are likely to gradually bid up Algonquin’s share price. Also, its earnings continue to grow.

“Algonquin . . . is a diversified international generation, transmission, and distribution utility with approximately $15 billion of total assets. Through its two business groups, the Regulated Services Group and the Renewable Energy Group, AQN is committed to providing safe, secure, reliable, cost effective, and sustainable energy and water solutions . . . to over one million customer connections, largely in the US and Canada. AQN is a global leader in renewable energy through its portfolio of long-term contracted wind, solar, and hydroelectric generating facilities. AQN owns, operates, and has net interests in over 3 gigawatts (GW) of installed renewable generation capacity.”

Algonquin is reasonably priced

In 2021, Algonquin’s earnings are expected to grow by 11.1 per cent, to C$0.90 a share. Based on this estimate, the shares trade at a sizable P/E (price-to-earnings) ratio of 21.9 times. At this time of the year, however, the market is more focused on the company’s outlook for 2022. Next year, Algonquin’s earnings growth is expected to accelerate by 13.3 per cent, to C$1.02 a share. This works out to a better forward P/E of 19.3 times.

Utilities can carry more debt than most companies. Even so, Algonquin’s net debt-to-cash-flow ratio of 10.3 times looks excessive. Just remember that it has raised US$1 billion by issuing 20,000,000 equity units. Also, its cash flow continues to grow. In the first half of 2021, its cash flow grew by 12.6 per cent, to US$300 million.

Algonquin remains a buy for attractive and growing dividends as well as long-term share price gains.

This is an edited version of an article that was originally published for subscribers in the September 10, 2021, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.
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