The markets have taken an ugly turn with the S&P/TSX Composite Index dropping over 5% from its February 2017 high. The “Trump Bump” looks to be fading as investor pessimism starts to kick in. While the general public is starting to become more fearful, I believe the current dip is an excellent opportunity for long-term investors to go value hunting for the stocks of great businesses that have taken a temporary step backward.
Algonquin Power & Utilities Corp. (TSX: AQN)(NYSE: AQN) is now down 7.5% from its high last month. Although the company still appears to be expensive with a 36.36 price-to-earnings multiple, I believe this is a reasonable price to pay when you consider that Algonquin offers stability, growth, a high yield, and a portfolio of unique assets.
The most intriguing thing about Algonquin is the fact that it’s able to sustain and grow its dividend while providing investors with capital appreciation. Algonquin isn’t your everyday, boring utility, the company is aggressively adding renewable energy and water assets to its portfolio to support future dividend hikes.
Between 2016 and 2018, the company expects to add 700 megawatts of generation capacity from wind and solar plants. These plants will have an average contract life of 21 years, which makes Algonquin’s cash flows incredibly reliable for investors looking for a solid income payer with a growth twist.
Another reason I believe Algonquin is worth a premium is the fact that it is one of the few Canadian traded securities that allows investors to get exposure to stable water assets.
Empire deal gives Algonquin a promising new growth platform in the Mid-West
The recent acquisition of Empire District Electric Company adds approximately $3.5 billion worth of utility assets and about 218,000 customers to its portfolio. The deal also adds over 1,200 miles of electric transmission lines, over 85 miles of natural gas transmission, and eight generation assets with an installed capacity of 1,412 megawatts.
The Empire deal significantly beefs up Algonquin’s U.S. presence with 85% of the assets located in the state of Missouri with the rest of the assets being located in the states surrounding Missouri, including Kansas, Oklahoma, and Arkansas.
With increased carbon regulation and lower prices for wind and solar power generation, Algonquin is set to ride major tailwinds as it aims to replace coal power with renewable sources of energy.
Bottom line
Algonquin is firing on all cylinders right now, and the recent sell-off has nothing to do with changes to the long-term fundamentals. If you’re looking for a utility on steroids, then now is a great time to buy on weakness. Collect the fat dividend, which currently yields 4.61%, while you wait for shares to move back into the green.
Stay smart. Stay hungry. Stay Foolish.
