Canada-based Algonquin Power & Utilities Corporation (AQN) is a diversified international generation, transmission, and distribution utility with approximately $11 billion of total assets, explains Robert Rapier, editor of Investing Daily's Utility Forecaster.
Through its two business groups, Liberty Utilities and Liberty Power, AQN provides rate-regulated natural gas, water, and electricity generation, transmission and distribution utility services to over 1 million customers in the United States and Canada.
Rate-regulated utilities account for 65% of the company’s business, but the company also has a substantial renewable portfolio.
Long-term contracted wind, solar, and hydroelectric generating facilities representing over 2 gigawatts (GW) of installed capacity and more than 1.4 GW of incremental renewable energy capacity under construction.
Despite a down year for utilities, Algonquin Power was one of the Top 5 performing electric utilities in 2020. The company has a lot in common with last year’s top-performing electric utility, NextEra Energy (NEE).
The companies have similar business lines, but AQN has a lower forward price-to-earnings ratio (23.3 versus 32.5) and a higher dividend yield (3.7% versus 1.7%).
The stock has outperformed the S&P 500 over the past five years by an annual average of 3.7%. I added Algonquin Power to our portfolio at Utility Forecaster during last year’s March meltdown, and it rewarded us with a 48.7% return by the end of the year.
AQN is a consensus Buy from analysts, who estimate long-term earnings growth of 7.8%. AQN is a suitable company for income investors, with a modest 5-year beta of 0.4 and the company is well-suited to benefit from the continued transition to greener power sources.
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Because Algonquin Power is a Canadian company, it does withhold taxes on dividends paid to U.S. citizens at a 15% rate. However, U.S. investors are exempt from this withholding if the shares are held in an IRA or 401k.
Meanwhile, my Top Pick from last year — Enviva Partners (EVA) — returned 22% in 2020. I have recommended Enviva since its IPO as a nice income pick in the green energy sector. Enviva is an MLP, and substantially outperformed its fossil fuel peers in 2020.
Despite the Covid-19 pandemic, Enviva saw its sales expand by another 32% in 2020. Over the past five years, sales have grown at an average annual rate of 18.5%, while EBITDA has grown at just under 30% per year.
Enviva remains well positioned to benefit as the world continues to address carbon emissions. That, combined with a yield of 6.3%, makes it an ideal pick for investors seeking sustainable income.
