A utility that outperforms the indexes

AQN - Algoquin Power & Utilities Corp

Algonquin Power & Utilities is a diversified utility company in North America with $10 billion in total assets. The company engages in the generation, transmission, and distribution of water, gas and electricity to communities across the U.S. It also has renewable energy operations.

Algonquin Power has two operating subsidiaries: Liberty Utilities (64% of 2018 earnings) and Liberty Power (36%). The company has more than 50 power generation facilities and 20 utilities across North America. Algonquin’s utility business serves nearly 770,000 customers in twelve states across the U.S., through 1,200 miles of electrical transmission lines and 100 miles of natural gas transmission pipelines.

As a growing renewable energy company, Algonquin Power owns a strong portfolio of long term contracted wind, solar and hydroelectric assets with 1.5 GW of total installed capacity. The company through its subsidiaries owns an equity interest in more than 39 clean energy facilities.

Investment Data

Revenue Growth & Market Exposure

Algonquin Power is a renewable energy and regulated utility company with assets across North America. The company owns a diversified portfolio of rate-regulated and non-regulated electricity, natural gas, and water utility businesses. Liberty Utilities owns and operates a portfolio of regulated water, electricity, and gas utility operations while Liberty Power operates in the non-regulated wind (76% of total generating capacity), solar (8%), hydro (8%) and thermal (8%) sectors.

Algonquin Power typically enters into long term PPAs (purchase power agreements) with an average contract length of 14 years or more providing longer term visibility to cash flows. The company is expanding organically within its rate regulated generation, distribution and transmission businesses, and also through acquisitions. Algonquin is known for developing and acquiring assets that are built for the long-term. APUC has successfully grown its regulated utility assets at 25% CAGR over the last five years.

APUC is targeting its non-regulated business to grow by developing new greenfield power generation projects and acquisition of new electrical energy generation facilities in supportive regulatory environments. In order to fully tap the potential of the rapidly growing renewable energy sources, the company entered into an agreement (last year) to create AAGES, a JV with Abengoa to develop and construct clean energy and water infrastructure assets. APUC is in a good position to address the demand of utility customers who are looking at receiving power generated by renewable resources.

Algonquin Power has lived up to its commitment of providing safe and reliable utility services to its customers and enjoys a strong reputation for the same. A robust business model, a strong pipeline of investment opportunities, and financial flexibility should assist future growth.

AQN - Market Global Reach

Dividends

Algonquin Power & Utilities last raised its dividend by 10%, marking its eighth consecutive year of double-digit annual dividend growth. It sports a high dividend yield of 4.5% and has compounded its dividend growth at more than 4% per annum over the last decade. Algonquin Power & Utilities anticipates an EPS growth of 10% CAGR which should support its dividend growth streak in the future.

The company is targeting cash flow and dividend growth through strategic acquisitions and operational excellence. Investing in opportunities that offer stable cash flow in the renewable energy and regulated utility sectors has been a core business strategy for Algonquin Power. A strong utility business continues to deliver stable and predictable earnings and cash flows.

The company is anticipating U.S.$7 billion worth of investment opportunities in both utility and North American renewable energy development initiatives in the next five years. An expanding pipeline of renewable energy development projects, significant growth opportunities (both organic and through acquisitions) and a conservative business platform are Algonquin Powers’ strong competitive advantages.

Competition

Algonquin Power competes with several utility companies such as Fortis Inc., Brookfield Infrastructure Partners, TransAlta Renewables, ATCO, etc. having a huge presence in the US and Canada. Fortis is a leading Canadian utility company with assets worth $50 billion and operating through ten utility operators. About 60% of its business is in the US and the remaining 40% is from Canada. Other large competitors are Brookfield Infrastructure Partners, TransAlta Renewables and ATCO. TransAlta Renewables is one of the largest generators of wind power in Canada while ATCO is a diversified company providing services and business solutions globally.

TickerCompanySectorIndustryScoreQuoteMarketCapPEFPEEPSYieldPayoutRatioPaymentsDividendChowderGraph
FTSFortisUtilitiesUtilities - Regulated57%$49.8321.4719.5418.98$2.553.61%70.59%4$1.809.22%1
HHydro OneUtilitiesUtilities - Regulated47%$21.9113.0616.8514.86$1.304.41%74.31%4$0.974.41%1
EMAEmeraUtilitiesUtilities - Regulated69%$50.3211.7816.517.85$3.054.67%77.05%4$2.3513.66%1
BIP.UNBrookfield Infrastructure PartnersUtilitiesUtilities - Regulated40%$55.6011.50463.33209.40$0.124.86%2250.45%4$2.7014.84%1
CUCanadian UtilitiesUtilitiesUtilities - Regulated64%$36.6010.0016.5616.63$2.214.62%76.51%4$1.6913.61%1
ACO.XAtcoUtilitiesUtilities - Regulated67%$45.335.2014.7714.43$3.073.57%52.74%4$1.6215.92%1
CPXCapital Power CorporationUtilitiesUtilities - Regulated80%$30.053.0612.4216.08$2.425.96%73.97%4$1.7912.50%1

Bottom Line

Algonquin Power’s diversified base of regulated water, gas, and electric utility businesses along with a stable portfolio of renewable energy assets underpins long term contracted cash flows and regulated earnings growth. The company is deploying a multi-strategy approach to growth consisting of acquisitions, organic growth, local as well as international expansion, regulated utilities, etc. Its three-decade long expertise, strong pipeline of future growth projects, investment grade capital structure and diverse operations should continue supporting its industry leading dividend growth in the future.

The graph below highlights a company worth investing as it can outperform the indexes. This company is worth putting on your watch list. I know it’s on mine now.

AQN vs Index

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.
Join 5,500+ Investors & Build a Winning Portfolio