Another Dividend King: Algonquin Power & Utilities Corp. (AQN)

Be Patient, No Simping

Simping has many definitions. Urban Dictionary defines a few here:

Someone who does way too much for a person they like

-Urban Dictionary (Top Definition)

A man who puts the hoes before the bros.

-Urban Dictionary (My Top Definition)

I think Retail Investors are simping for the market. We are back up near all time highs, with large portions of the country still shut down, and retail investors are telling the market, “I’ll buy you at any price baby.” All the while, we ignore the bros that are reasonably valued and are dependable.

Valuations Matter: Apple (36 PE), Microsoft (38 PE), Amazon (125 PE), etc, etc, etc.

Find yourself a bro that’s worth the price, like Algonquin (AQN, 16 PE).

I’m too lazy to actually make this look good. You get it!

What Is Algonquin Power & Utilities?

Algonquin, “owns and operates a diversified portfolio of regulated and non-regulated generation, distribution, and transmission utility assets.” Source: http://investors.algonquinpower.com/

The regulated areas include: electrical distribution systems, natural gas distribution, water distribution and wastewater collection. The nonregulated areas include: hydro electric, thermal, wind, and solar facilities. Approximately 85% of the energy output are under long term contracts with an average 13.3 year contract life.

Why I Like Them for a Long-Term Buy

A few months ago we recommended BIP/BIPC. That post is here. We highlighted the 4% growing yield and share price that outpaced the S&P 500. This is the same style of investment. You’re getting real assets with a company that reinvests cash flow, grows shareholder value, and pays you a nice dividend.

AQNBIPSPY
Current Yield3.95%4.14%1.63%
5-Year Total Return
(Yield Reinvested)
160%138%85%
Dividend Growth
(5 Years Avg. Y/Y)
10%6.5%6.6%
These two are utility/infrastructure based… and still beating a tech heavy S&P 500

Dividend Growth: Through the company’s reinvestment of free cash flow, taking on debt for acquisitions, and issuing equity strategically it has managed to grow it’s dividend 10% annually since 2009. In addition, the dividend coverage has actually trended downwards in recent years as the balance sheet and earnings have improved.

The Balance Sheet: The balance sheet and assets under management have been growing stable, and the company has over $3 Billion in available liquidity ($9.3B valuation). They have continued their acquisitions this year and are not in a stressed position with their balance sheet.

Valuation

The company currently sits at a 16 times PE. Covid-19 has dampened their growth slightly with earnings and EBITDA decreasing about 1% Y/Y. However, this is because a lot of payments from the regulated utility division were curtailed until a later time. The company’s accounts receivable has grown because of this. Normal collections began in some jurisdictions in late July, and cash flow will hopefully follow.

Currently the company has two regulated utility acquisitions and has multiple wind and solar projects signed contracts in the works. The company will continue to grow in the future and I think the valuation is reasonable considering the company’s track record and future growth.

What Should You Do?

Utilities usually are not sexy investments. They’re not flashy. However, the company has a higher yield than the market, it’s grown in dividend more than the market (and will continue to), and has a significantly better valuation than the currently S&P 500’s 35 PE (46% under market with more growth??).

The company could totally drop 10% in the next month with market worries, but then your 4% yield would go up and would be re-investing at a much higher ROI. This is a great position for any Roth IRA, especially if you have cash lying around.

I haven’t posted in… gosh a long time. That’s because I don’t want to provide subscribers and readers with click bait. Only real investments that can immediately outpace the market and benefit you. Don’t simp for the market, chase lofty valuations, and lose your future returns because you weren’t patient. Invest in those overpriced companies later. Invest in companies that are a reasonable price if you want to put cash somewhere.

And subscribe for new posts while you’re at it. I don’t post often. Don’t miss them!

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