Algonquin Power & Utilities Corp (TSX:AQN)(NYSE:AQN) has an incredibly high yield of nearly 11% right now. It definitely looks like it may be in trouble as the business' profits have been lean of late, with Algonquin reporting a net income over the trailing 12 months of just US$29 million on revenue of more than US$2.6 billion. Its earnings per share of US$0.07 is nowhere near being enough to cover its quarterly dividend of US$0.18, let alone its payouts for the entire year.
Sometimes, however, net income doesn't tell the whole story. Cash flow numbers can sometimes give investors a better indication of how the business is doing. Unfortunately, that isn't looking a whole lot better as the utility company's free cash flow is a negative US$660 million over the trailing 12 months. Even the company's day-to-day operating activities are generating just US$251 million, which is not enough to cover the company's cash dividend payments (US$375 million) over the past four quarters.
In its latest earnings report, the company admitted that the third quarter was challenging, admitting that, "our results for the quarter came in below our expectations and were negatively impacted by increasing interest rates and the timing of tax incentives related to certain renewable energy projects."
As of now, things don't look encouraging for shareholders and the safer strategy is to wait. The company says it "is evaluating its longer-term targets and financial expectations" and that it will have an update at its Investors and Analyst Day early next year. Until that happens and there's more clarity about its future, investors should avoid Algonquin's stock for now as a dividend cut could prove to be inevitable.
