ALGONQUIN POWER & UTILITIES CORP. $13(Toronto symbol AQN; High-Growth Dividend Payer Portfolio, Utilities sector; Shares outstanding: 472.1 million; Market cap: $6.1 billion; Dividend yield: 5.1%; Dividend Sustainability Rating: Above Average;www.algonquinpower.com)operates through two main businesses: The Generation Group produces and sells electricity from 35 clean energy facilities across North America; and the Distribution Group provides regulated electricity, natural gas, water distribution and wastewater collection services.
The company will increase its quarterly dividend by 10.0% with the July 2018 payment. Investors will then receive $0.1282 U.S. a share instead of $0.1165 U.S. The new annual rate of $0.5128 U.S. yields a high 5.1%.
Big acquisition more than doubled annual revenue
Algonquin’s revenue jumped 192.9%, from $675.3 million in 2013 to $2.0 billion in 2017. That’s mainly due to acquisitions, including the January 2017 purchase of Missouri-based Empire District Electric for $3.4 billion. The firm serves over 218,000 customers through eight power plants.
If you disregard unusual items, the company’s earnings soared 390.9%, from $59.5 million in 2013 to $292.1 million in 2017. Algonquin sold shares to help fund its purchases. Due to more shares outstanding, earnings per share rose at a slower rate of 184.6%, from $0.26 to $0.74.
Overall cash flow jumped 296.7%, from $154.9 million in 2013 to $614.5 million in 2017. Cash flow per share gained 111.8%, from $0.76 to $1.61.
In March 2018, Algonquin paid Spain’s Abengoa SA $608 million U.S. for a 25% stake in Atlantica Yield plc. It has now agreed to purchase an additional 16.5% of Atlantica for $345 million U.S. That will raise its stake to 41.5%.
Atlantica owns and operates a portfolio of 22 facilities; they comprise 1.4 gigawatts of renewable power generation, 300 megawatts of natural gas generation, 1,770 kilometres of electric transmission lines and two water desalination plants. They’re also spread across Europe, South and North America, and Africa.
All of those facilities sell their power under guaranteed contracts. On average, each has 19 years remaining on its agreements. What’s more, the investment in Atlantica will add immediately to Algonquin’s cash flow per share.
Atlantica investment starts to pay off
In the first quarter of 2018, Algonquin’s revenue rose 17.3%, to $494.8 million from $421.7 million a year earlier. (Note: Algonquin recently changed its reporting currency to U.S. dollars from Canadian dollars.) Aside from the addition to Atlantica, earnings benefitted as colder-than-normal winter weather spurred demand for electricity and gas.
Excluding one-time items, earnings in the quarter rose 112.0%, to $141.0 million from $66.5 million. Earnings per share gained 68.4%, to $0.32 from $0.19, on more shares outstanding. Cash flow improved 14.8%, to $179.9 million from $156.7 million, but cash flow per share declined 8.7%, to $0.42 from $0.46, on those additional shares outstanding.
As a result of its recent purchases, Algonquin’s long-term debt was $3.8 billion U.S. (as of March 31, 2018). That’s a high, but manageable 80% of its market cap. The company also ended the quarter with cash of $67.9 million U.S.
The stock trades at 9.1 times Algonquin’s forecast 2018 cash flow of $1.12 U.S. a share.
Algonquin Power is a buy.
Algonquin’s dividend has risen at an average annual rate of 6.5%:
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