Growth by acquisition adds risk, but Algonquin Power & Utilities reduces that risk by buying profitable utilities and selling its renewable power under secure, long-term government contracts. Its biggest acquisition yet, in Missouri, reflects the company’s focus on the U.S. and also helps contribute to its stated goal of raising its dividend by 10% per year.
ALGONQUIN POWER & UTILITIES (Toronto symbol AQN; www.algonquinpower.com) operates through two main businesses: Generation and Distribution.
The Generation Group produces and sells electricity across North America. It generates 1,545 megawatts of power through wind (68%), thermal (22%), hydroelectric (8%) and solar (2%) operations. It sells 88% of that under long-term contracts. The Distribution Group serves 564,000 customers with regulated electricity, natural gas and water distribution, and wastewater collection.
In January 2017, Algonquin completed its biggest acquisition to date: the $3.4 billion purchase of Missouri-based Empire District Electric. Empire District serves over 218,000 customers through eight power plants. Together, they produce 1,326 megawatts of generating capacity.
In the quarter ended March 31, 2017, Empire pushed up Algonquin’s revenue by 63.3%, to $557.9 million from $341.7 million a year earlier. Cash flow per share rose 35.6%, to $0.61 from $0.45.
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Energy Stocks: Goal is to increase dividend by 10% annually
Growth by acquisition—particularly rapid growth—adds risk. But Algonquin cuts that risk by buying profitable utilities. Its renewable energy projects also sell their power under long-term government-guaranteed contracts.
Algonquin plans to invest $6.3 billion between 2017 and 2021 to expand its operations. It will allocate around $1.9 billion of that spending to expand Empire District’s regulated operations. This could include both natural-gas plants and wind farms.
To further cut risk, the company will use the remaining $4.4 billion to focus on U.S. wind and solar projects that offer a combination of tax credits and long-term contracts.
These growth plans should let Algonquin meet its stated goal of increasing its dividends by 10% annually.
With the April 2017 payment, Algonquin raised its quarterly dividend by 10.0% to $0.1165 U.S. from $0.1059 U.S. The new annual rate of $0.466 U.S. yields 4.7%. In 2014, the company switched from paying its dividends in Canadian dollars to U.S. dollars to reflect the fact that it generates the majority of its cash flow in the U.S.
In 2016 the company’s shares began trading on the New York exchange in addition to Toronto. That reflects its U.S. focus, and should give it greater access to capital.The stock trades at 12.7 times the company’s forecast 2017 cash flow of $1.05 a share.
Thanks for your question. The Sharpe ratio compares the returns of an investment with its risk. It can be used to evaluate a single security or an entire investment portfolio. In either case, the higher the ratio, the better the investment in terms of risk-adjusted returns.
By comparing the return on an investment to the extra risk associated with it above and beyond a risk-free asset—typically, a U.S. Treasury security—the Sharpe ratio gives investors a clear picture of whether higher returns are adequately compensating them for taking on additional risk.
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Would you please explaine the Sharpe Ratio.It might be of interest to other members as well.Thank you
Thanks for your question. The Sharpe ratio compares the returns of an investment with its risk. It can be used to evaluate a single security or an entire investment portfolio. In either case, the higher the ratio, the better the investment in terms of risk-adjusted returns.
By comparing the return on an investment to the extra risk associated with it above and beyond a risk-free asset—typically, a U.S. Treasury security—the Sharpe ratio gives investors a clear picture of whether higher returns are adequately compensating them for taking on additional risk.