In this current economic environment, investing in companies operating in the utilities sector or other sectors of the economy which tend to act in line with bond markets may seem like financial suicide.
Companies like Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) which have been on a fantastic ride in recent years have dipped dramatically in the past few months as investors re-assess the risk profile and determine whether potential capital depreciation with holding these securities justify the higher than normal yield these companies offer.
In the case of Algonquin, I believe this utility company's dividend is one of the best in its class for a few reasons. The company's proposed annual dividend hike schedule of 10% per year for the foreseeable future is not amazing; in the utilities space, such a dividend hike is often par for the course.
While a 10% per year hike in the company's annual dividend distribution adds up over time (investors will see the amount of money they receive from an investment today double by 2025 if this pace continues), investors have a range of options to consider in this space which offer comparable growth.What is different about Algonquin, however is the companies foretasted EBITDA growth of 15% per year to accompany its payout increase over time. If Algonquin is able to do what it says it will do, the company's dividend payout ratio will actually decrease over time, despite the nominal payout increasing at a double-digit rate each and every year.
Invest wisely, my friends.