In the utilities space, Algonquin Power and Utilities Corp. (TSX:AQN)(NYSE:AQN) has been a top pick of mine for some time. Reasons include the company’s impressive track record of growth, as well as the utility player’s attractive and growing dividend yield.
Throughout the coronavirus pandemic, Algonquin’s yield has fluxed into high-mid single digits, now sitting around an attractive 5% dividend yield for investors. With long-term bond yields below 1%, being able to earn five times such an income with an equity like Algonquin over a tradition bond, the risk is definitely worth the reward for most investors with income needs.
Algonquin has an impressive ability to grow in a few ways. The company grows through organic channels, related to the company’s strong stable of existing assets and regulated utilities businesses. Also, the company has grown through acquisitions of a pipeline of solid assets, which have become cheaper in recent quarters due to the coronavirus pandemic. This growth has propelled the company’s cash flow to grow at a higher rate than I expected recently.
Fundamentally, Algonquin remains cheap and is trading at only 12x funds from operations (FFO). The company has a very conservative payout ratio and impressive growing cash flows which support the potential for further dividend increases or share buybacks down the road, in addition to more acquisitions in this sector. From growth to income, investors spanning the risk spectrum ought to consider Algonquin in this environment.
Invest wisely, my friends.
