Algonquin Power & Utilities Corp. (TSX:AQN) has dipped more than 6% from its 52-week high. Yet the shares are still more than 23% higher than they were a year ago.

Should you consider its shares today for income or total returns? First, let’s take a look at the business.

The business

Algonquin Power & Utilities is a diversified North American utility with about $5.5 billion of assets. It has a portfolio of wind, solar, hydroelectric, thermal, and natural gas power-generating facilities, which have an installed capacity of about 1,300 megawatts.

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 the utility.

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


Since 2010 Algonquin Power & Utilities has hiked its dividend per share at an annualized rate of 9.9%, or a growth of nearly 77%. Because the utility pays a U.S. dollar–denominated dividend, the growth was actually higher for Canadian investors. The stronger the U.S. dollar is against the Canadian dollar, the higher the income for shareholders will be.

For this year the utility is estimated to have a payout ratio of about 74%. The utility is also expected to grow its cash flow by 13-15% per year in the next few years. So, it has the ability to continue growing its dividend.

Algonquin Power & Utilities pays eligible dividends, which are more favourably taxed in a non-registered account compared to your job’s income.

The quarterly dividend per share of US$0.1059 totals an annual payout of US$0.4236 per share. That’s a yield of 4.8% based on the current foreign exchange rate and the share price of $11.60 per share.


Algonquin Power & Utilities commissioned 200 megawatts of generation at the end of July. On top of that, it has more than 500 megawatts under construction or in development, which have a weighted-average power-purchase agreement of 20 years. When they come into service, they will increase the utility’s stable earnings and cash flows and support a growing dividend.


Algonquin Power & Utilities has an investment-grade S&P credit rating of BBB and a debt/cap of 51%. The utility has a reasonable payout ratio of 74% and offers a yield of 4.8%.

Thomson Reuters has a mean 12-month price target of $14 on the stock, which implies a potential upside of 20%. So, Algonquin Power & Utilities is a safe investment to consider for income and total returns and is especially attractive on further dips.

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