Algonquin Power & Utilities Corp. (TSX:AQN) has been nothing short of amazing. In the past year it has appreciated 32% and is near its all-time high.

Is it still a buy?

The low-interest rate environment has driven more people to the stock market in search of higher yields. Algonquin Power & Utilities offers an above-average yield of 4.5% today.

Algonquin Power & Utilities pays eligible dividends, which are more favourably taxed in a non-registered account compared to your job’s income. The company is likely to grow its dividend to help you counter inflation and maintain your purchasing power.

The business

Algonquin Power & Utilities is a diversified North American utility. It has a portfolio of wind, solar, hydroelectric, thermal, and natural gas power-generating facilities, which have an installed capacity of 1,185 megawatts. About 60% of its electrical output is under long-term contractual arrangements, which have a weighted average remaining contract life of 14 years.

Algonquin Power & Utilities provides essential water, electricity, and natural gas utility services to more than 560,000 U.S. customers. These are all rate regulated and generate stable and predictable earnings for Algonquin Power & Utilities.

It’s also involved in rate-regulated electric transmission and natural gas pipeline systems in the U.S. and Canada.


Algonquin Power & Utilities pays a U.S. dollar-denominated dividend. Since 2010 its dividend per share has grown from US$0.06 to US10.59 cents, which equates to an annualized growth of 9.9%.

In the foreseeable future, the utility aims to increase its dividend by 10% per year, underpinned by increases in earnings and cash flow. The 10% hike translates to a 12% hike assuming an exchange rate of US$1 to CAD$1.20.

At about $12.30 per share, the utility yields 4.5%. The utility’s cash flow covers its dividend with a payout ratio of about 50%.

Strong first-quarter results

In the first quarter, Algonquin Power & Utilities’s adjusted earnings before interest, taxes, depreciation, and amortization increased 29% to $147.9 million compared with the first quarter of 2015. Similarly, its adjusted funds from operations grew 21% to $121.8 million, and its adjusted earnings per share grew 24%.

This is thanks partially to the strong U.S. dollar against the Canadian dollar. For example, about 6.4% of its earnings per share were attributable to the stronger U.S. dollar.

Going forward

From 2016 to 2018, Algonquin Power & Utilities will add about 700 megawatts of generation capacity from wind and solar power-generating facilities with an average contract life of 21 years. These contracts will further improve the stability of the utility’s cash flows.

Other than expanding its business operations, Algonquin Power & Utilities is also on the lookout for accretive acquisitions, which will contribute to growth.


Algonquin Power & Utilities is a diversified utility with an S&P credit rating of BBB and a reasonable debt-to-cap of 51%.

The utility is fully valued at 11.5 times its cash flow, but it’s a utility with growth potential. Its cash flow is estimated to grow at about 14% per year in the medium term.

It will be an excellent buy on dips when mergers and acquisitions occur. For example, on February 9 when it announced a merger with Empire District Electric Company, Algonquin’s share price fell a little over 8% in a few days. In five months the shares have more than recovered to the pre-dip levels.

If you’re less concerned about total returns, the company’s safe 4.5% yield can be a nice addition to the income in your diversified portfolio.

Just released! One top renewable energy stock for 2016--and beyond!

Renewable energy is predicted to be the largest source of electricity growth over the next five years. A trend like that is simply too hard for us Fools to ignore. Luckily, we've identified 1 Top Renewable Energy Stock for 2016 - And Beyond that we think Canadian investors should take a much closer look at. If you'd like our full analyst report sent directly to your inbox FOR FREE, then click here right now..."


Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.

We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.

We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!

Fool contributor Kay Ng has no position in any stocks mentioned.