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Algonquin Power – Buy, Sell or Pass?

Recently via the TSI Network, I received some news about Algonquin Power (AQN), a company I’ve considered adding to my portfolio.  Today’s post will provide an overview of this utility company to see if it offers value for dividend-oriented investors.

About the company

Algonquin Power & Utilities Corporation is a regulated utility company with assets across North America.  From their company website, they invest in hydroelectric, wind and solar power facilities, and have sustainable utility distribution businesses (water, electricity and natural gas) through their two operating subsidiaries: Algonquin Power Company and Liberty Utilities.  AQN owns directly or indirectly interests 20 hydroelectric generating facilities, 5 wind energy facilities, and 7 thermal energy facilities.

Via the TSI report, I read the company’s utility businesses provide water, electricity and natural gas services to over 470,000 customers.  This is up 120,000 customers from a year ago.  Its hydroelectric, thermal energy and wind plants currently generate 1,100 megawatts of power, up from 460 megawatts.  Investors of Emera (EMA) might be happy to know Emera owns about 25% of Algonquin.

Selected company metrics

Here are some metrics dividend-oriented investors might want to know about:

  • The company just raised their dividend by almost 10%.
  • EPS is 0.17, rather low but not unlike many capital intensive utility companies.
  • Quarterly dividend = $0.085.  For Canadian residents, dividends declared on common shares are considered “eligible dividends” for the dividend tax credit.
  • Yield around 5%.
  • 5-year average dividend growth rate = -15%.
  • Consecutive dividend increases = just 3 years.
  • Total stock return over last 3 years = >17%.
  • Market cap = $1.4 B.

With new acquisitions over the last couple of years, cash flow per share up and more cash on hand (more than $50 million on the books ready to pay more dividends versus only $5 million held at the end of 2010), Algonquin seems poised for growth moving forward.  With a share price under $7, less than 100 shares are needed at this time to reinvest dividends in this company every quarter, the investment proposition in AQN is tempting.

What are your thoughts about AQN as a dividend investment?  Buy? Sell? Take a pass?

Filed in: Stocks

8 Responses to "Algonquin Power – Buy, Sell or Pass?"

  1. GOTCHA says:

    Currently holding 100 shares of AQN. Not dripping.
    Price seems to be lagging lately even if last earnings looked pretty good (well to me). Seems like a buy!
    But Susan Brunner had a post about AQN and it didn’t look that good !

  2. Bram says:

    I would worry about the $1.1B debt.
    They need to use their income to pay interest to banks,
    I would rather have them pay me with dividends,

  3. I sort of like them. Their last two quarters have been good and I think more representative of their financials moving forward. They had $0.17 in adjusted earnings in the last 6 months, which is a P/E of 20 and essentially a 100% dividend payout ratio, but with some potential for increased revenue and earnings.

    • Hopefully with the new acquisitions, things will improve. Definitely dropping in price and approaching 52-week low. I’m not too scared of the 100% payout ratio right now, since most utilities are high in this metric, but a high payout ratio is not sustainable long-term.

      I prefer to see payout ratios under 70%.

  4. GOTCHA says:

    I meant 1000 shares.
    I would not buy 100 shares as the commission will eat the dividend :)

    And back to their pre-2008′s crash price.

    I like them!

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