When you look at the share performance of Altagas Ltd. (TSX:ALA) and Fortis Inc. (TSX:FTS)(NYSE:FTS), the two top utilities in Canada, there is no comparison to make.
While Altagas stock plunged ~19% this year, Fortis outperformed with a big margin, rising 10% during the same period.
After this pullback, Altagas’s dividend yield has become extremely attractive at 7.6% versus Fortis’s 3.5%.
So, if you have to make an investment decision today, which one do you pick? I think that’s a million-dollar question, and answer isn’t that simple. Let’s find out what’s behind the uncertainty about Altagas’s future that’s keeping investors nervous.
Altagas
Altagas has three business segments — gas, power, and utilities — with a well-diversified geographical presence. Its gas infrastructure runs more than two billion cubic feet of gas per day.
Altagas shares have been on a slippery slope since it announced the $8.4 billion acquisition of the U.S.-based WGL Holdings. Investors are concerned about how Altagas will be able to fund this huge undertaking when its total assets are worth about $10 billion.
The company may also face regulatory hurdles in the U.S.; there are previous examples when the regulator didn’t approve a few deals on the first go.
Fortis
In contrast, Fortis has total assets of $48 billion as of June 30. The company serves utility customers in five Canadian provinces, nine U.S. states, and three Caribbean countries.
With a 3.5% dividend yield and about 6% expected growth in its annual dividend payouts through 2021, Fortis is a great dividend-growth stock.
In the past decade, Fortis’s annual distribution increased from $0.67 to $1.53, which is a CAGR of 9%. The company has increased its dividend payout for 43 consecutive years.
Which one is better?
Both Fortis and Altagas have different risk/reward profile for dividend investors. Investing in Fortis is just like smooth sailing. Altagas, with all the uncertainty about its WGL deal, is in an uncharted territory.
But if you can stomach a little higher risk, the reward will be great. Once the company’s acquisition is out of the way, most likely in the first half of 2018, Altagas will have more than $22 billion of assets and over 1.7 million rate-regulated gas customers. Altagas’s valuations will be improved greatly with its ability to generate more cash and increase dividends.
In the current situation, having a 50-50 split between the two stocks wouldn’t be bad a strategy if one has to pick between the two.
