Algonquin Power & Utilities Corporation is an Oakville, Canada based company that has a portfolio of regulated and non-regulated generation, distribution, and transmission utility assets in Canada, the United States, Chile, and Bermuda. The firm works towards generation and sale of electrical energy through non-regulated renewable and clean energy power generation facilities. Algonquin Power owns a host of hydroelectric, wind, solar, and thermal facilities. These facilities produce a combined 2.1 GW of power. Algonquin Power provides its services to about 306,000 electric connections; 371,000 natural gas connections; and 409,000 regulated water distribution and wastewater collection utility systems across the states of California, New Hampshire, Missouri, Kansas, Oklahoma, Arkansas, Georgia, Illinois, Iowa, Massachusetts, New York, Arizona, Texas, and the Province of New Brunswick. The company was established in 1988 and has grown steadily ever since. It’s one of the best utility stocks available for investment in Canada. Should you add it to your portfolio? Let’s find out.
Algonquin Power Stock: Important things to know before investing
Is Algonquin Power Stock a defensive stock?
When it comes to highest rates of returns, growth stocks lead the way. But they also expose the investor to the highest degree of risk. If you want your money to grow quickly, it makes sense to invest a portion of your portfolio into growth stocks. However, savvy investors should always diversify their portfolio. Defensive stocks such as Algonquin Power stock provide dividends and act as a hedge when markets turn volatile. Because of this, investing in a defensive stock is a critical element of long term investing. You might have to lose on a few percentage points of return but it will be worth it in the long run. Algonquin Power & Utilities (TSX: AQN)(NYSE: AQN) is one such stock.
This massive $12 billion utilities firm distributes natural gas and electricity across multiple countries. A majority of the firm’s earnings come from regulated operations. These operations are heavily responsible for stability and predictability of its stock’s performance. The company also invests heavily in cleaner, greener renewable energy assets.
Riding on the earning stability of regulated operations, Algonquin Power also uses its exposure towards renewable energy sources for some additional growth. Because of that, Algonquin Power has seen more growth than its peers.
How has Algonquin Power stock performed recently?
Algonquin’s net income rose significantly from just over $85 million in 2015 to $782 million in 2020. That growth rate is almost unheard of in the utilities sector. Most firms exhibit low, single-digit earnings growth. However, the Algonquin stock has managed to outperform its peers quite significantly. Its stock price has reflected the earnings growth, returning a scarcely believable 600% over the last 10 years. Some of its peers like Fortis (TSX:FTS)(NYSE:FTS) returned just 135%, while Canadian Utilities (TSX:CU) stock returned 81%.
However, it does trail its peers when it comes to the criteria of dividend yield. Its dividend yield of 3.9% is quite lower than the industry average. During the last financial year, Algonquin Power distributed 33% of its earnings in the form of dividends. Algonquin’s payout ratio is also lower than other utilities firms. However, that also means that there is a significant chance of dividend increase in the long run. Fortis had a payout ratio of 67%, while Canadian Utilities had it at around 127% (it means that the firm gave out more dividends than it earned) in 2020.
Utilities firms tend to always possess a higher payout ratio. Predictable requirements of capital expenses is a big reason why these firms can distribute a large portion of their earnings among their shareholders.
Why should you invest in utilities?
While utility companies grow slowly, they also remain relatively stable in the face of adversity. Their growth usually stays immune to changes in business/economic cycles (even recessions). If you invest in utility stocks like Algonquin Power, your money will likely continue to generate similar earnings. The dividend payout is also expected to be consistent in the face of economic downturns. Over the next five years, Algonquin Power is planning to invest US $9.4 billion in capital projects. The earnings stability and renewables portfolio is expected to give consistently growing dividends.
What is the Algonquin Power stock symbol?
Algonquin Power is a Canadian stock that trades on the Toronto Stock Exchange (TSX) and New York Stock Exchange (NYSE) with the symbol AQN.
What is Algonquin Power’s stock price?
As of 25th May, 4:00 PM GMT-4, Algonquin Power stock closed at a price of $18.64, which was a very small increase from the previous day’s closing value..
Does Algonquin Power pay dividends?
Algonquin Power & Utilities paid an annual reading of $0.62 per share last financial with a dividend yield of 3.35%. Algonquin Power & Utilities pays out 35.03% of its earnings out as a dividend.
Is Algonquin Power a good stock to buy?
Algonquin Power is involved in the utility business which has proven to be a dependable energy source over the years. The firm has invested heavily in green energy solutions and has a stable balance sheet. The income of the firm has consistently grown and its asset portfolio is well diversified. It’s expected to keep its growth rate up, making it an amazing long term stock to invest in.
Algonquin Power: Is it for everyone?
Algonquin Power stock was one of the strongest recovering stocks from 2020’s pandemic crash. Over the last 12 months, the stock has risen by 18%. Compared to its peers, Algonquin Power stock has been trading at a relatively discounted valuation against peers. This makes it an undervalued stock, pointing towards a further rise. While utility stocks prove to be boring because the stock price moves slowly, they give the benefit of generating low risk returns in the long run. Even the most aggressive investor can take advantage of the Algonquin Power stock and use it as a protective tool against future market crashes.