AltaGas Ltd.: Should You Buy or Hold?

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.

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


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