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Altagas Ltd. Reports Solid Q2 Results, Raises Outlook: Time to Buy?

Altagas Ltd. (TSX:ALA), one of North America’s largest owners and operators of energy infrastructure, released its second-quarter earnings results and raised its outlook on 2017 before the market opened this morning, but its stock has remained relatively unchanged in the day’s trading session. Let’s take a closer look at the earnings results and the fundamentals of its stock to determine if we should be long-term buyers today, or if we should hold off on investment for the time being. 

Breaking down the Q2 results

Here’s a quick breakdown of six of the most notable statistics from Altagas’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q2 2017 Q2 2016 Change
Revenue $539 million $426 million 26.5%
Normalized EBITDA $166 million $153 million 8.5%
Normalized net income $28 million $29 million (3.4%)
Normalized net income per share $0.17 $0.19 (10.5%)
Normalized funds from operations (FFO) $123 million $114 million 7.9%
Normalized FFO per share $0.72 $0.75 (4%)

Raising its outlook on 2017

In its earnings release, Altagas raised its outlook on 2017. It now expects to achieve low double-digit percentage growth in normalized EBITDA, compared with its previous outlook of high single-digit percentage growth, and it stated that it continues to expect high single-digit percentage growth in normalized funds from operations.

What should you do with Altagas today?

Altagas’s second-quarter performance was good, and its performance in the first half of the year was fantastic, with its revenue up 26.4% year over year to $1.31 billion, its normalized EBITDA up 18.7% year over year to $394 million, its normalized net income up 36.8% year over year to $93 million, and its normalized FFO up 18.5% year over year to $294 million. With this being said, I think the stock represents a very attractive long-term investment opportunity for two primary reasons.

First, it’s one of the energy sector’s best growth stocks. Altagas achieved double-digit percentage growth in normalized EBITDA and normalized FFO in 2016, and its outlook calls for more of the same in 2017. I also think its ongoing expansion efforts, including the $2.6-3.44 billion worth of growth projects in its capital-spending plans and its “transformational” acquisition of WGL Holdings, which is expected to close in the first half of 2018 and provide “material accretion” to its earnings and normalized FFO, will allow it to continue to grow at a double-digit percentage rate into the 2020s.

Second, it has one of the best dividends around. Altagas pays a monthly dividend of $0.175 per share, equal to $2.10 per share annually, giving it a lavish 7.2% yield. It’s also important to note that its 6.1% dividend hike in August 2016 has it positioned for 2017 to mark the seventh consecutive year in which it has raised its annual dividend payment, and it has a dividend-growth program in place that calls for annual growth of 8-10% through 2021, making it both a high-yield and dividend-growth play today.

With all of the information provided above in mind, I think all Foolish investors should strongly consider making Altagas a core holding.

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Fool contributor Joseph Solitro has no position in any stocks mentioned. Altagas is a recommendation of Stock Advisor Canada.

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