Algonquin Power’s increased ownership of of Atlantica Yield is part of its strategy to enter global clean energy and water infrastructure markets. Algonquin is a buy for growth and income.
Algonquin Power & Utilities Corp. (TSX—AQN; NYSE—AQN) has agreed to purchase an additional 16.5-per-cent equity interest in Atlantica Yield plc for about US$345 million. Algonquin had previously acquired an indirect 25-per-cent interest in Atlantica in March for about US$608 million.
Oakville, Ontario-based Algonquin Power is a renewable energy and regulated utility company. It is engaged in hydroelectric, wind, thermal and solar power production facilities, and sustainable utility distribution businesses.
Atlantica owns and operates a diverse, long-term contracted portfolio of 22 facilities representing 1.7 gigawatts of clean power generating capacity, 1,770 kilometres of electric transmission lines, and two desalination plants in selected global markets including North America, South America, Europe, the Middle East and Africa.
Algonquin Power provides rate-regulated natural gas, water, and electricity generation, transmission and distribution utility services to over 750,000 customers in the US. It’s also committed to being a global leader in the generation of clean energy through its portfolio of long-term contracted wind, solar and hydroelectric facilities representing more than 1,250 megawatts (MW) of installed capacity.
2017 was a record year for Algonquin Power
The company has just come off of a year of unprecedented growth and record financial results across its organization. For the year ended Dec. 2017, Algonquin’s adjusted funds from operations (AFFO) were $614.5 million, or $1.57 a share, compared with $356.4 million, or $1.24 a share, in 2016.
The results reflected, in large part, a full year of contributions from the acquisition of Empire District Electric Company, a regulated utility serving the US mid-west and south, in January 2017. Also contributing to results were new renewable generation facilities totaling 210 MW of capacity.
This growth in AFFO allowed for a 10-per-cent increase in Algonquin Power’s dividend in 2017. And the company is expected to increase the dividend by another 10 per cent by mid-year.
Future dividend growth should be supported by Algonquin Power’s investment in Atlantica Yield. Algonquin Power purchased its interest in Atlantica from Abengoa S.A. of Spain. Previous to the purchase, Algonquin Power had formed a joint venture with Abengoa that’s focused on the development and construction of global clean energy and water infrastructure assets. Algonquin believes the joint venture offers it a balanced approach to its strategic entry into important global markets, letting it capitalize on Abengoa’s broad international presence and expertise.
Algonquin pays a quarterly dividend of US$0.1165 a share, which gives it an attractive yield of 4.6 per cent. Algonquin is forecast to report cash flow of $1.55 a share in 2018. The shares trade at a reasonable 8.2 times that estimate.
Algonquin Power is a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the May 4, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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