We have four reasons to rate Atlantic Power Corp. a ‘sell’. You should move your cash into one of the five blue chip electric utility stocks that we rate as ‘buy’ and that pay attractive and growing dividends.
Massachusetts-based Atlantic Power Corp. (TSX—ATP) says it “owns and operates a diverse fleet of power generation assets in the United States and Canada. Our power generation projects sell electricity to utilities and other large commercial customers largely under long-term power purchase agreements. . . . Our power generation projects had an aggregate gross electric generation capacity of approximately 2,138 megawatts (MW) in which our aggregate ownership interest is approximately 1,500 MW. Our current portfolio consists of interests in twenty-three power generation projects across nine states . . . and two provinces.”
Indeed, ATP generated more than 59 per cent of last year’s revenue of $399 million in the U.S. (all numbers in U.S. dollars unless preceded by a C). The company generated the balance of less than 41 per cent in Canada.
We rate ATP a sell for several reasons. First, after losing money last year, it’s expected to lose money again this year and next.
Second, ATP eliminated its dividend. This is a turnaround from 2012, when the dividend peaked at $1.15 a share. Earning attractive dividends is a big reason to hold utilities.
Third, the shares trade at about 4.5 times their book value of C$0.75. With ongoing losses, the shares’ book value looks set to decline.
Fourth, Atlantic Power has significantly underperformed its peers on the Toronto Stock Exchange. Recent weakness in the share price gives them downwards price momentum.
ATP’s assets give it a stage-one quality rating of ‘Very Conservative’. But due to the drawbacks outlined above, we’ve reduced this by a notch to ‘Conservative’. We may eventually further reduce its quality rating.
If you own Atlantic Power, sell it. Move the cash to electric utilities that pay attractive and growing dividends.
Five blue chip electric utility stocks to buy
The Investment Reporter rates five very conservative, blue chip electric utility stocks as ‘buys’ for attractive and growing dividends and long term share price gains. They are:
■ Algonquin Power & Utilities Corp. (TSX—AQN; NYSE—AQN), a renewable energy and regulated utility company that owns hydroelectric, wind, thermal and solar power facilities, and sustainable utility distribution businesses;
■ Canadian Utilities (TSX—CU), a member of the ATCO Group of companies that is engaged in the transmission & distribution of electricity and natural gas. The company is also involved in power generation and sales, natural gas gathering, processing, storage and liquids extraction;
■ Emera Inc. (TSX—EMA), an energy and services company invested in electricity generation, transmission and distribution as well as gas transmission and utility energy services;
■ Fortis Inc. (TSX—FTS; NYSE—FTS), an international diversified electric and gas utility holding company with customers across Canada, Central America, the United States and the Caribbean; and
■ TransAlta Renewables (TSX—RNW), an owner and operator of hydro facilities and wind farms in Western and Eastern Canada and which also holds an economic interest in Wyoming Wind.
This is an edited version of an article that was originally published for subscribers in the April 28, 2017, 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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