As risk-averse income investors, we’re leery of change. As such, we’re always looking for ways to hedge against the unexpected, while still enjoying earnings and dividend growth, asserts income expert Ari Charney, editor of Investing Daily's Utility Forecaster.

To that end, one of our favorite utility business models is one that uses the stable cash flows generated by regulated operations to support the push into renewables.

Avangrid (AGR) was formed late last year by the merger of New England-based utility UIL Holdings (UIL) with the U.S. subsidiary of the Spanish utility giant Iberdrola SA (IBRDY).

The $12 billion utility holding company derives the vast majority of its revenue from regulated utilities (76% of sales) with a growth kicker from renewables (24%). Its network has 2.2 million electric customers and nearly 1 million gas customers.

Avangrid’s renewables business has 5,700 megawatts of net generating capacity in 18 states, with nearly 90% coming from wind, making it one of the largest wind operators in the U.S.

Avangrid is in the early stages of a major buildout. It plans to invest $6.8 billion through 2020 in its regulated utilities and another $2.8 billion in renewables.

Based on these investments, Avangrid is projected to grow earnings per share by 8% annually over the next five years, one of the strongest growth rates in the sector.

The utility is significantly underlevered compared to its peers, affording it ample balance-sheet capacity to fund its capital plan. Equally important, low leverage gives management the scope to pursue growth via acquisitions.

Avangrid has substantial backing from Iberdrola, which holds 81.6% of shares outstanding. And the Spanish utility clearly intends to use Avangrid to further expand its U.S. footprint through M&A.

The merged entity has only been around for a little more than a year, so we’re still getting a sense of how it will perform over the long term and we’re still waiting to see how it handles its first major acquisition.

Nevertheless, we believe that such execution risk is more than compensated for by Avangrid’s attractive yield and strong growth trajectory. With a forward yield of 4.5%, Avangrid is a buy below $42.

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