Stocks of acquisition-minded companies typically trade at what I call a “show me” discount: Whatever promises management makes about earnings and dividend growth, operating numbers will have to show it before the share price will rise, observes Roger Conrad, editor of Conrad's Utility Investor.

That’s certainly been the experience for owners of Algonquin Power & Utilities (AQN) — which thanks to multiple successful acquisitions will generate almost twice the revenue, nearly 2.5 times the EBITDA and pay a 55 percent higher dividend next year than it did in 2018.

Algonquin shares produced a superior average annual total return of about 14 percent over that time. But returns have been notoriously uneven, including a slightly underwater showing so far in 2022.

The company’s largest unit is Liberty Utilities, which owns and operates regulated electric, natural gas distribution and water utilities in 13 states as well as Atlantic Canada, Chile and Bermuda.

The unregulated wind and solar generation arm has 2.5 gigawatts of operating capacity, 82 percent sold under contracts with an average life of 12 years. And the company owns 42.49 percent of Atlantica Yield (AY), which generates dividend income and is a financing vehicle with global reach for other asset development.

All three divisions had a strong first half 2022. That advanced overall Q2 earnings 7 percent, despite a 12.2 percent increase in outstanding shares.

Algonquin’s equity raise cut risk by pre-financing the purchase of Kentucky Power from American Electric Power (AEP). Unfortunately, failure to close to date has caused shares to lag this year. I suspect the stock will continue to underperform until management reaches a deal with AEP to resolve “inconsistencies” between the merger approvals granted by Kentucky and West Virginia regulators.

That’s basically ownership and operating agreements for the Mitchell coal plant. Algonquin’s current guidance is an agreement will be reached in “the second half of 2022,” in time for a solid lift to 2023 earnings and for the stock before then.

For now, the silver lining is investors have another opportunity to lock down the stock’s 5 percent plus yield, which is set to grow reliably at a mid-to-upper single digit percentage rate the next few years. Offering a high, safe yield with locked-in growth, Algonquin is a buy up to $16.

Subscribe to Conrad's Utility Investor here…