Is Altagas’ 7.4% Yield Worth the Risk?

The bull case for Canada-based energy infrastructure company Altagas Ltd. (TSX:ALA) is hard to ignore. Currently trading at a significant discount to historical levels, holding a dividend yield in the 7.4% range, Altagas’ asset base and strength as one of the best operators in the business is certainly not being priced in by the market, a fact which remains true and one which makes a very interesting case for investors considering buying this stock at depressed levels.

Altagas’ recent acquisition of WGL Holdings in the U.S. has the potential to revitalize the company’s business, providing geographic diversification as well as currency hedging to the company’s portfolio which is heavily weighted to Canada.

The issue many investors have with this purchase, however, is that (1) it is not currently approved by regulators, (2) many feel that Altagas overpaid for these assets, given the premium associated with the deal, and (3) the financing which has been done to provide enough cash to close the deal is at terms which many investors do not believe reflects decent value for the firm.

With the company’s share price currently trading at a substantial discount to the subscription receipts the company issued as part of its financing for the WGL deal, the consensus in the market is that buying ALA shares at current levels is a prudent thing.

Time will tell what the outcome will be for this company pending the completion of the WGL transaction, however, I would view a purchase in Altagas in this current environment as too speculative for my taste, given the number of unknowns remaining with this key transaction – a deal which may make or break the company moving forward.


Invest Wisely, my friends.