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Altagas Ltd.: Should You Buy This Unloved Dividend Stock for 2018?

Contrarian investors are always searching for beaten-up stocks that might be on the cusp of a rebound.

The extended rally in the stock market in 2017 means the hidden gems are getting harder to find, and there is certainly a risk that we could see a meaningful pullback at some point in the near term.

However, deals are always out there; we just have to fight through the noise to find the right ones.

Let’s take a look at Altagas Ltd. (TSX:ALA) to see if it deserves to be a contrarian pick today.

Asset growth

Altagas owns gas, power, and utility businesses in Canada and the United States.

The company has grown over the years through a mix of organic projects and strategic acquisitions, and that trend continues.

Altagas recently completed the expansion at its Townsend gas processing facility. In addition, the North Pine NGL project is expected to wrap up ahead of schedule, and the Ridley Island propane export terminal is progressing as planned.

On the acquisition side, Altagas is working through its purchase of Washington D.C.-based WGL Holdings. Management expects to close the deal next year and is targeting 8% per year dividend growth for 2019-2021.

This all sounds positive, and it is, so why is the stock is down nearly 15% in 2017?

Energy infrastructure players have generally been out of favour this year, but investors are also concerned Altagas might not be able to get as much as it hopes for non-core assets the company plans to sell to help cover part of the WGL acquisition.

Management can’t be too concerned about the deal. The company just reported solid Q3 2017 numbers and bumped the dividend up by more than 4%.

The existing assets are performing well, and the organic projects are moving along quite nicely.

Should you buy?

The stock has already recovered some of its lost ground, but more upside could be on the way if Altagas manages to unload some assets at favourable prices and is able to close the WGL deal on schedule.

At the time of writing, the stock trades for close to $29 per share. That’s up from the low around $27.50 in late August, but still significantly off the 12-month high of about $35. If you go back to 2015, this stock was $50 per share, so the upside potential is certainly attractive once things turn around.

In the meantime, investors who buy the stock today can pick up a solid 7.5% yield.

Additional volatility should be expected in the coming months, but contrarian investors with a buy-and-hold strategy might want to add a bit of Altagas to the portfolio while the stock is still out of favour.

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Fool contributor Andrew Walker owns shares of Altagas. Altagas is a recommendation of Stock Advisor Canada.

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