Why this 9% Yielder May Not Be On Sale Forever

Companies that see their stock prices decline while holding or raising dividend distributions will, necessarily, see their corresponding dividend yield rise.

Over the past few quarters, Canadian oil & gas player Altagas Ltd. (TSX:ALA) has seen this scenario play out in a way that has made many current shareholders waver, and new investors unsure of the ability of the company to maintain its dividend yield and grow at a reasonable rate, given its large acquisition in the U.S. market and the feeling that the company may be taking on too much debt at the wrong time.

The company’s recent acquisition of WGL Holdings in the U.S. has generally not gone over well with investors, as the general consensus was that this deal did not make sense from a financial perspective, as well as a synergistic perspective.

That being said, I believe that much of the pessimism surrounding WGL may already be priced into the company’s very low valuation, creating a potential opportunity for income-oriented investors to pick up a very juicy (and potentially growing) yield.

Currently, Altagas investors will receive a dividend yield of 8.6%, making this one of the highest quality high-yielders available on the TSX, in my books. With the company set to sell off assets to pay for the remaining portion of the WGL deal which has not been financed, I expect to see shares trade around the $30 level soon, as investors realize the potential benefit of the deal and see accretive cash flow numbers roll in.

 

Invest wisely, my friends.