Algonquin Power has undertaken transformative actions to reshape its business model, strengthen its financial position, and focus on regulated utility operations. The strategic divestitures of its stake in Atlantica Sustainable Infrastructure and its renewable energy business provide substantial proceeds for debt reduction and addresses a key concern for investors.
While the transition involves short-term adjustments including dividend reductions, the resulting pure-play regulated utility offers a more focused business model with potential for stable returns and improved financial health over time.
The company’s renewed focus on its regulated utility business serving over 3.15 million customers across multiple jurisdictions provides a stable foundation for predictable cash flows and potential rate base growth.
ALGONQUIN POWER & UTILITIES (Toronto symbol AQN; www.algonquinpower.com) completed the sale of its 42.2% ownership stake in Atlantica Sustainable Infrastructure plc in December 2024, for $1.08 billion.
Furthermore, it also recently sold its non-regulated renewable power assets, which produce electricity from about 40 clean-energy plants in North America, to LS Power.
Algonquin received $2.28 billion (all amounts in U.S. dollars). It could receive an additional $220 million depending on the future performance of those assets.
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As a result of those sales, the company now focuses on its regulated utilities, which supply electricity, gas, water distribution and wastewater collection services to 3.15 million customers in Canada, the U.S., Chile and Bermuda.
Algonquin will use the cash from the asset sales to pay down its long-term debt of $6.21 billion U.S. (as of December 31, 2024). That’s equal to 176% of its market cap.
Algonquin Power: Yield remains high despite recent reduction
Due to the loss of cash flow from the renewable operations, Algonquin cut your quarterly dividend by 40.1%. Starting with the October 2024 payment, investors now receive $0.065 U.S. a share instead of $0.1085. The new annual rate of $0.26 nonetheless yields a high 5.8%.
Meanwhile, shifting to a pure-play regulated utility firm will cut Algonquin’s risk. Moreover, its dividend payout ratio will be a more sustainable 60% to 70% of its long-term earnings.
Recommendation in Dividend Advisor: Algonquin Power & Utilities Corp. is a buy.
