Algonquin Power & Utilities is a diversified utility company in North America with $10 billion in total assets. The company engages in the generation, transmission, and distribution of water, gas, and electricity to communities across the U.S. Algonquin is also active in international infrastructure development through its AAGES JV and its 41.5% equity interest in Atlantica Yield.
Algonquin Power has two operating subsidiaries: Liberty Utilities (85% of 2018 revenues) and Liberty Power (15%). The company has more than 50 power generation facilities and 20 utilities across North America. Algonquin’s utility business serves nearly 800,000 customers in twelve states across the U.S., through more than 11,600 km of electricity and 7,500 km of gas distribution lines. As a growing renewable energy company, Algonquin Power owns a strong portfolio of long term contracted wind, solar and hydroelectric assets with 1.5 GW of total installed capacity. The company through its subsidiaries owns an equity interest in many clean energy facilities.Investment Data
- Opportunity Score: 69
- Ticker: TSE:AQN
- Sector: Utilities
- Industry: Utilities - Renewable
- Market Cap: 13.03B
- P/E: 20.86
- Dividend Yield: 3.61%
- Payout Ratio (Earnings): 75.03%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 8/10
Revenue Growth & Market Exposure
Algonquin Power is a renewable energy and regulated utility company with assets across North America. The company owns a diversified portfolio of rate-regulated and non-regulated electricity, natural gas, and water utility businesses. Liberty Utilities owns and operates a portfolio of regulated water, electricity, and gas utility operations while Liberty Power owns and operates a diversified portfolio of non-regulated renewable and clean power generation assets located across North America consisting of wind, solar, hydroelectric and thermal facilities. Since its inception in 1988, Algonquin has grown to over 70 power generation facilities and utilities in Canada and the U.S.
Algonquin Power typically enters into long term purchase power agreements with an average contract length of 14 years or more providing longer-term visibility to cash flows. The company is expanding organically within its rate regulated generation, distribution and transmission businesses, and also through acquisitions. Algonquin is known for developing and acquiring assets that are built for the long-term. APUC has successfully grown its regulated utility assets at 25% CAGR over the last five years.
Algonquin announced an agreement to extend its regulated utility footprint internationally through the acquisition of the Bermuda Electric Light Company. The company is expanding its regulated utility footprint, with the commencement of construction on the three projects comprising 600 MW of wind in Missouri and Kansas. APUC also completed previously announced utility acquisitions of New Brunswick Gas and St. Lawrence Gas which have expanded its utility presence into New York State and the province of New Brunswick, and added nearly 30,000 customers to its distribution footprint, totalling to over 800,000 customers. The New Brunswick Gas acquisition also marked Liberty Utilities’ first regulated utility asset in Canada. APUC is in a good position to address the demand of utility customers who are looking at receiving power generated by renewable resources.
On the non-regulated renewables business group front, the construction program related to Algonquin’s projects targeting 2020 COD is well underway. It received the final certificate from the Missouri Public Service Commission for Greening the Fleet wind development initiatives in the Midwest, which is expected to drive compelling savings for its customers. Algonquin continued to grow its pipeline developing 470 MW Maverick Creek wind project in Texas. In addition, the company made good progress in its existing pipeline of opportunities.
Algonquin Power has lived up to its commitment to providing safe and reliable utility services to its customers and enjoys a strong reputation for the same. The company continues to keep growing both its regulated and non-regulated asset base. A robust business model, a strong pipeline of investment opportunities, and financial flexibility should assist future growth.
Algonquin Power & Utilities last raised its dividend by more than 9%. Its dividend yield currently stands at 3.7% and its payout ratio is 71%. It compounded its dividend growth at more than 10% per annum in the last three years. Algonquin Power & Utilities anticipates an EPS growth of 10% CAGR which should support its dividend growth streak in the future. The company is targeting cash flow and dividend growth through strategic acquisitions and operational excellence. Investing in opportunities that offer stable cash flow in renewable energy and regulated utility sectors has been a core business strategy for Algonquin Power. A strong utility business continues to deliver stable and predictable earnings and cash flows.
The company has benefited from U.S. tax reform where lower rates have been implemented in virtually all of its regulated utilities. It witnessed improved EBITDA driven by its investment in Atlantica as well as a stronger fleet of renewables when compared to last year. Algonquin has also issued 1 million common shares under the ATM program for gross proceeds of ~$13.2 million in the second quarter. It also completed its first-ever U.S. marketed offering of common shares which will be targeted to be used towards financing the company’s previously announced acquisitions and its renewal development growth project.
APUC completed ~$5 million in rate reviews and has another ~$45 million in rate reviews pending and remains positive about them. The company is making good progress on the five-year $7.5 billion capital program and is on track to deliver on growth pipeline that will drive value for shareholders. It is also trying to develop a structure for lowering customer rates using a combination of solar, wind and energy storage. An expanding pipeline of renewable energy development projects, significant growth opportunities (both organic and through acquisitions) and a conservative business platform are Algonquin Powers’ strong competitive advantages.
Algonquin Power competes with several utility companies such as Fortis, bipBrookfield Infrastructure, TransAlta Renewables Inc., Atco Ltd, etc. having a huge presence in the US and Canada. Fortis is a leading Canadian utility company with assets worth $50 billion and operating through ten utility operators. About 60% of its business is in the US and the remaining 40% is from Canada. Other large competitors are Brookfield Infrastructure Partners, TransAlta Renewables and ATCO. TransAlta Renewables is one of the largest generators of wind power in Canada while ATCO is a diversified company providing services and business solutions globally.
Algonquin’s expanding pipeline of renewable energy development projects, organic growth opportunities within its rate regulated generation, and growing distribution and transmission businesses are its strong growth drivers. The company stands a good chance to benefit from its diversified utility platform. It remains on track on its $7.5 billion project pipeline of growth that is expected to drive shareholder value. Stable, predictable earnings from Algonquin’s regulated utility operations provide visibility for dividend payouts. The company’s three-decade-long expertise, strong pipeline of future growth projects, investment-grade capital structure and diverse operations should also support future dividend growth.