Top Picks 2017: Algonquin Power & Utilities

01/10/2017 6:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

In October 2008, as world stocks markets convulsed, this Canada-based hydro power developer and utility operator announced it would convert from an income trust to a corporation, Roger Conrad, editor of Conrad's Utility Investor.

Management at Algonquin Power & Utilities (AQN) — our Top Pick for conservative investors — cut its dividend by 74 percent, and the stock plunged to an all-time low of US1.42 per share.

The decision was a stunner, but the move to redeploy dividend cash to fund its aggressive growth strategy has paid off.

Algonquin’s asset base has grown from less than $1 billion to more than $11 billion now. And since late 2008, annual shareholder returns have topped 25 percent.

Five potential catalysts should produce safe annual returns of 15 to 20 percent for 2017 and beyond.

First, with the January 1 close of the Empire District Electric acquisition, the company has $7.5 billion in commercially secured investments in place.

Second, with that acquisition, its largest state market is now Missouri, which is likely to give in-state utilities a huge boost this year by enacting favorable regulatory reform. 

Potential catalyst number three is the new NYSE listing, which improves liquidity for US investors, particularly large institutions.

Catalyst four is the company’s Canadian dollar exposure. Any revival of US inflation will send it higher, lifting company earnings and the US dollar value of its share price.

Last but not least is safety. For eight years, Algonquin has maintained the same conservative payout policy of 30 to 40 percent of available cash flow, including 33.4 percent in first nine months of 2016.

Algonquin’s credit rating is rated solidly investment grade at BBB by S&P. And stock trades at a discount to the typical US blue chip utility, yielding half again more than the Dow Jones Utility Average. Buy up to US$9.

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