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Altagas Ltd.: A High-Yielding Dividend-Paying Stock for Your TFSA

In times of transition and/or uncertainty, or just plain negative sentiment, there lies potential opportunity. This is a truth that has led to countless undervalued investments that have provided investors with superior returns.

Here we have a company that’s currently in this situation, as it has been faced with its own unique challenges, but it continues to have high-quality, long-life assets that will continue to bring in strong cash flows.

Altagas Ltd. (TSX:ALA) shares currently presents a good opportunity for investors that can see beyond the immediate uncertainty. The shares have declined 82% in three years and 19.5% since the beginning of this year. And the kicker is that new investors can get into this stock while it has a 7.64% dividend yield.

Second-quarter results were better than expected, as the company is enjoying strong momentum both operationally and financially. As a result, management is expecting low double-digit growth in normalized EBITDA and high single-digit growth in normalized funds from operations.

The $8.4 billion WGL acquisition, which will add additional high-quality assets and give the company a significant footprint in the U.S. and Canada, has left investors with many questions. The approval process is slow and uncertain, the closing date is uncertain, although management expects that final approvals will come in during the first half of 2018, and the implementation of financing is also a big uncertainty.

At the end of the day, however, the deal will be accretive to earnings and cash flow and brings with it a plethora of growth opportunities. The company has identified $5 billion in immediate growth opportunities plus an additional $2 billion in opportunities through to 2021.

Investors can expect a dividend increase this year and an 8-10% growth rate in dividends for a payout ratio of between 50% and 60% until 2021. On the second-quarter conference call, management pointed out that the decision to raise the dividend is not based on the closure of any transaction, but it’s a function of financial results and growth of existing operations.

The conclusion here is that the dividend will be increased; it’s just a matter of how much. And given that the company is performing ahead of expectations, we can probably expect a growth rate at the high end of guidance.

So, while we wait for the uncertainty to subside and for the company to move forward on the WGL acquisition, investors can sit tight and receive their very healthy 7.64% dividend yield. That’s not bad at all.

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Fool contributor Karen Thomas has no positions in any of the companies listed in this article. Altagas is a recommendation of Stock Advisor Canada.

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