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Algonquin Power: Steady Utility With Strong Renewable Exposure

A reliable dividend utility company to keep on your watch list.

From the earliest days of our company’s history, sustainability has underpinned how we think, act and operate. By virtue of the business we’re in, creatively and responsibly delivering clean energy and water solutions that create better everyday lives and aspire our communities, sustainability is ingrained in our nature.

These words come from Ian Robertson, CEO of Algonquin Power & Utilities Corp., a utility provider headquartered in Oakville, Canada. The company owns regulated and non-regulated assets across 13 U.S. states and Ontario. The portfolio is 65% regulated utilities and 35% non-regulated renewables. The former has 801,000 customer connections with 368,000 natural gas, 266,000 electric and the remaining 167,000 water. The renewable assets are 48% wind with a total generating capacity of 2.2 GW annually. In total, the company owns 53 wind, solar, hydro and thermal facilities with 93% of the portfolio under long-term contracts across diverse regulatory jurisdictions.

These assets, according to its prospectus from October (the company completed their first U.S. marketed equity offering on the NYSE in the same month with gross proceeds of $354 million), are organized into two business units: Liberty Utilities Group and Liberty Power. Liberty Utilities operates the regulated utilities, and Liberty Power operates the renewable, non-regulated assets.

Much of the company’s exposure to renewables comes from a 44.2% investment in Atlantica Yield, a Nasdaq-listed company that reported $1.04 billion in revenues for the full year 2018 and $798 million for the nine months ended Sept. 30, 2019. Atlantica Yield is much more diversified geographically than Algonquin with 41% of its portfolio in Europe, 36% in North America and 12% in South America. CFO of Algonquin, David Bronicheski, referenced this investment on the recent Q3 earnings call:

Within our nonregulated group, the business generated a divisional operating profit of $66 million, an increase of $22 million compared to Q3 2018. The increase in adjusted EBITDA is related to our investment in Atlantica as well as higher wind and solar resources that boosted production from much of our fleet of renewables compared to the same period last year.

Algonquin has a $7.3 billion market cap and 5-year CAGR of over 30% from 2013 to 2018. AQN also has a solid record of dividend growth offering shareholders 10% or better over the last 10 years. Furthermore, Algonquin’s share price has increased 70% over the last five years with very few pullbacks over that time. The company has also seen its total revenue over that span increase 122.4%.

Source: Company Investor Presentation

Furthermore, renewable energy is not going away, and Algonquin is set to spend $7.5 billion through 2023 on growth capital, of which 30% will go toward renewable energy assets. Here is CEO Robertson speaking about that growth capital plan:

We are pleased that we are continuing to make progress on our 5-year $7.5 billion capital investment program that we outlined at last year Investors Day. Within our non-regulated renewables business group, Liberty Power, we’re pleased to report that the construction program related to our projects targeting 2020 COD are well underway. I already mentioned that the ground has been broken on the 490-megawatt Maverick Creek Wind project in Texas, but access roads and turbine foundations are being constructed on the 202-megawatt Sugar Creek Wind project in Illinois and our 24-megawatt Val Éo project in Québec, both of which, we anticipate, will achieve commercial operations next year. Additionally, foundation pile-driving and panel installations are underway at our Great Bay 2 Solar project in Maryland.

In closing, Algonquin is a consistent company with solid investments for the future, and, utility investments make for solid defensive plays when the market appears top-heavy. AQN’s regulated utilities provide a solid revenue foundation, while the renewables provide a catalyst for future growth.


Equities Contributor: Stephen L. Kanaval

Source: Equities News

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