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AltaGas Ltd. Stock Is 54% Off All-Time Highs! Buy Now or Bail?

AltaGas Ltd (TSX:ALA) stock has gone nowhere fast. But there is no question about it: investors are faced with a real opportunity here. I mean, how often do investors get the opportunity to gain access to a stable and predictable suite of assets at such a price and dividend yield?

Not often. This is happening because of the uncertainty related to the closing of the WGL acquisition and asset disposals. But is this justified? I believe not, and I think investors are being paid very nicely to wait for more clarity.

These are the times when investors that keep their eyes on the long term and look past market sentiment and short-term uncertainty can make tonnes of money.

And while the stock may very well continue to go nowhere until we get answers, in the meantime, investors are receiving a 9% dividend yield from a leading North American energy infrastructure company that has stable, predictable cash flows, which are driven by its low-risk, long-life energy infrastructure portfolio.

There are many reasons investors can be confident in buying now.

While some investors may be concerned about the company’s payout ratio, when we look at the payout ratio using the company’s cash flow generation, we can see that the dividend is fully covered by its cash flow generated (i.e., it actually has a strong payout ratio).

In the last five years, AltaGas has grown its asset base to over $10 billion from $3 billion at the end of 2010 through acquisitions as well as construction projects, and it has delivered a compound annual growth rate in its dividend of 9%.

Results are showing momentum, with the company’s first-quarter 2018 results coming in ahead of expectations, as earnings per share were $0.40. With the energy market picking up steam — with increased prices and increasing activity — we can expect more momentum going forward.

Let’s go back to the uncertainties that have plagued AltaGas stock and thus provided us with this opportunity to get into the stock at a very attractive price and dividend yield.

The company is making progress on final approval on the WGL deal, with one more approval required and expected mid-year. At the end of the day, the WGL acquisition will be very 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.

And in the first full year after the acquisition, 2019, management expects approximately 85% of its EBITDA to come from contracted or regulated assets. As for asset sales, while the deal’s closing is not predicated on this, the company is still working on its asset-monetization strategy, which will contribute to paying off its bridge loan.

Management is in discussions with many parties regarding the sale of different assets, including the potential sale of its minority interest in Northwest B.C. Hydro facilities, and it is expected that this monetization will bring in $2 billion is proceeds this year.

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Fool contributor Karen Thomas has no position in any of the stocks mentioned. AltaGas is a recommendation of Stock Advisor Canada.

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