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Altagas Ltd. Stock: Should You Buy for the 9% Yield?

The pullback in the stock market is driving up the dividend yield on a number of Canadian companies that have recently increased their distributions.

Let’s take a look at Altagas Ltd. (TSX:ALA) to see if it might be an interesting pick right now.

Growth

Altagas owns natural gas, power, and regulated utility businesses in Canada and the United States. The company has grown over the years through a combination of organic developments and strategic acquisitions, and that trend continues.

Altagas completed the expansion of its Townsend gas-processing facility in early October. The $125 million project finished ahead of schedule and $5 million under budget. Permitting is in place for a third development at the site. Townsend is part of the company’s northeastern British Columbia strategy to provide the region’s producers with complete midstream services.

In early December, Altagas began the commercial operation of its North Pine NGL Separation Facility. The $120 million development is another piece of the company’s B.C. strategy and was also completed early and came in $15 million under budget.

The final part of the B.C. puzzle is the Ridley Island propane export terminal. Altagas is making good progress on the project, which is expected to begin operations in early 2019.

South of the border, Altagas is working through its $8.4 billion purchase of Washington, D.C.-based WGL Holdings. The deal is partly responsible for the company’s weak stock performance over the past year, as the market is concerned Altagas might be biting off more than it can chew.

Altagas plans to sell non-core assets to help cover the cost of the acquisition, but investors are wondering if the company will be able to find buyers willing to pay enough for the facilities. Efforts to sell some of the company’s power assets in California were recently put on hold.

Dividends

Altagas raised its dividend by more than 4% in late 2017. Management says it expects the WGL deal to close in 2018 and support annual dividend growth through 2021.

At the time of writing, investors can pick up an annualized yield of 9%.

Should you buy?

When a company’s yield gets this high, investors have to be cautious. The stock has fallen from $31 per share a year ago to $24.50, and ongoing volatility should be expected until there is more clarity on the WGL deal. As a result, you need to have a bit of a contrarian investing style to step in right now, but the payoff might be worth the risk.

The existing dividend should be safe, and a successful disposition of non-core assets to cover part of the WGL deal would likely take some pressure off the stock.

If you have a bit of cash on the sidelines looking for a high-yield home, it might be worthwhile to add a bit of Altagas to the portfolio today.

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*returns as of 5/30/17

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

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