AltaGas Ltd.: Should You Buy or Hold?

As AltaGas Ltd. (TSX:ALA) enters the final stretch of its much-hyped acquisition, the long-term opportunities for investment are becoming clearer with each passing day.

| More on:

I’m always on the lookout for a great deal, and while I have a tendency to jump when an opportunity presents itself, I still try to do my due diligence rather than act on emotion.

One stock that has recently caught my attention is AltaGas Ltd. (TSX:ALA). Year to date, the stock has declined nearly 20%, but it maintains an almost absurdly high monthly dividend that pays a yield of 8.78%.

Let’s take a look at AltaGas in more detail and determine if this is a worthwhile stock for your portfolio.

First, some fundamentals

Calgary-based AltaGas is a diversified energy infrastructure company that operates in three primary segments: gas, power, and utilities.

Specifically, the gas segment encompasses the extraction, gathering, storing, processing, and transmitting of over two Bcf/day of natural gas. The power segment includes natural gas, wind, hydro, and biomass generation capabilities of over 1,700 MW in addition to assets for energy storage across North America. Finally, the utility segment caters to a customer base of over 580,000, providing natural gas through both a regulated storage utility as well through regulated distribution channels.

This is an interesting distinction from many of its peers that shouldn’t be discounted. Regulated utilities in particular pose an intriguing investment opportunity that is backed up by a stable, secure, and, most importantly, recurring revenue stream.

Speaking of revenue, AltaGas provided results for the first fiscal quarter of 2018 last week, which included normalized EBITDA coming in at $223 million, down slightly from the $228 million reported in the same quarter last year. Normalized funds from operations came in just lower than the $170 million reported in the previous year, coming in at $169 million. Normalized net income for the quarter came in at $70 million, or $0.40 per share, surpassing the $65 million, or $0.39 per share, reported in the same quarter last year.

WGL acquisition: coming soon?

One of the pressing issues with AltaGas is the long-drawn-out acquisition of WGL Holdings, which has had an impact on the stock price. The $9 billion deal was announced last January but has been awaiting the requisite approvals to complete. One of the two remaining approvals for the deal was granted last month, with the final approval expected to come later this summer.

The deal will effectively make AltaGas a much larger player in the utility market, while maintaining WGL’s strong and growing presence in the U.S. market.

One of the key reasons to invest in AltaGas remains that incredible dividend. Despite that payout level, AltaGas maintains that the dividend is both secure and still growing. The company currently has plans to continue growing within a range of 8-10% over the next three years, assuming that WGL acquisition continues to pan out as planned.

Should you buy AltaGas?

If you are an income-seeking investor, then the monthly dividend and impressive yield that AltaGas offers has likely already convinced you. In a similar vein, growth-oriented investors are looking at the potential of the WGL acquisition as reason to buy into the stock.

While there are some uncertainties relating to AltaGas, this is not unique to the company or the acquisition, as much of the energy sector saw declines over the past year.

In short, buy the stock, enjoy the dividend payout, and wait out the WGL acquisition to complete. When it finally does get approved, get ready for some serious growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned. AltaGas is a recommendation of Stock Advisor Canada.  

More on Energy Stocks

oil and gas pipeline
Energy Stocks

Top TSX Stocks to Consider as Natural Gas Price Races to US$10

Natural gas has been on a roll this year, and so have natural gas stocks!

Read more »

TSX Today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, May 26

TSX stocks may remain volatile today with the expected release of the U.S. GDP data and the ongoing Canadian bank…

Read more »

Filling up at the gas pumps.
Energy Stocks

Gas Prices Are Hitting Record Highs: 2 Stocks to Buy Now!

Buy Suncor Energy stock, Canada's integrated oil and gas giant that's benefitting immensely, as gasoline prices continue to soar.

Read more »

Business success with growing, rising charts and businessman in background
Energy Stocks

3 Hydrogen Stocks Set to Become Major Multi-Baggers

These three hydrogen stocks could certainly achieve multi-bagger status in the years to come after they overcome the present-day hurdles.

Read more »

energy oil gas
Energy Stocks

Surge Energy Stock Has Doubled in 2022 and There’s Still Steam Left

Canadian small-cap oil and gas stocks seem unstoppable this year!

Read more »

Oil pumps against sunset
Energy Stocks

Top 3 Energy Stocks for 2022

Energy stocks like Enbridge (TSX:ENB)(NYSE:ENB) should be on the top of your list.

Read more »

oil and natural gas
Energy Stocks

3 Reasons Oil Stocks Are Outperforming Tech This Year

Oil stocks like Baytex should be on your watch list.

Read more »

oil and gas pipeline
Energy Stocks

3 High-Yielding Energy Stocks to Buy Amid Rising Volatility

These three energy stocks can boost your passive income.

Read more »