Against a backdrop of global inflation, higher energy prices, climate change, and complex geopolitical developments stemming from the war in Ukraine, utilities companies play a central role because they create and distribute everyday amenities like electricity, gas, water and power.
Against a backdrop of inflation, this utility is a safe harbour
Algonquin Power & Utilities (TSX—AQN)
Algonquin is a Canada-based diversified, international generation, transmission and distribution utility. The Company through its two business groups, the Regulated Services Group and the Renewable Energy Group, provides sustainable energy and water solutions through its portfolio of electric generation, transmission and distribution utility investments to approximately one million customer connections in the United States and Canada.
The company is a provider of renewable energy through its portfolio of long-term contracted wind, solar, and hydroelectric generating facilities. It owns, operates, and/or has net interests in over four gigawatt (GW) of installed renewable energy capacity. It delivers, through an expanding global pipeline of renewable energy and electric transmission development projects, organic growth within its rate-regulated generation, distribution and transmission businesses, and the pursuit of accretive acquisitions.
Algonquin’s profit margin of 8.27 per cent and its operating margin of 17.80 per cent underscore the sustainability of its business model. It is also growing, with quarterly revenue growth of 18.30 per cent compared to last year, and trailing twelve month cash flow of $732.57 million.
Trading near its 52-week low price, this stock provides the value-seeking investor with an opportunity to purchase a stock typically seen as a haven during difficult times at an attractive price. While its payout ratio of 230.87 per cent suggests investors should watch carefully for any signs of business model weakness, its relatively high dividend yield of 6.37 per cent may provide a level of comfort that warrants the risk that it may reduce dividend payout levels if earnings wane.
On Aug. 12, 2022, Arun Banskota, President and Chief Executive Officer of Algonquin Power emphasized three strategic pillars of growth. Operational excellence and sustainability underpin the firm’s strategy. Indeed, Mr. Banskota asserted, the firm has a “once in a generation opportunity to accelerate renewables growth” and he expects renewable generation to produce “incremental benefits with increasing scale”.
Investors may wish to take this opportunity to participate in the renewables contribution to future growth, by purchasing Algonquin Power stock during this corrective price action.
Margaret Samuel, MBA, LL.B., CFA is President, CEO and Portfolio Manager of Enriched Investing Inc. She can be contacted at info@enrichedinvesting.com.
This is an edited version of an article that was originally published for subscribers in the October 2022/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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The MoneyLetter •11/24/22 •