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Dividend Investors: Should You Buy AltaGas Ltd. (TSX:ALA) Today?

Energy infrastructure and utility stocks are starting to recover after a nasty downturn that significantly cut valuations and drove some dividend yields to mouth-watering levels.

AltaGas Ltd. (TSX:ALA) is one of the companies that has taken a hit in recent years, but it’s showing signs of rebound. Let’s take a look at the current situation to see if it deserves to be in your portfolio right now.

Done deal

The company recently completed its controversial $9 billion takeover of Washington, D.C.-based WGL Holdings. AltaGas stands by its opinion that the deal is a game changer. The combined business has operations in 30 states and provinces, crossing several segments. The clean energy assets include wind, solar, biomass, and battery storage facilities. In addition, the natural gas distribution operations serve 1.8 million residential and business customers with a rate base of $4.5 billion. The utility rate base is expected to increase to $7 billion through 2021.

In British Columbia, AltaGas completed two projects last fall and is on track to finish its Ridley Island Propane Export Terminal in the first part of 2019. The facility is the first of its kind in western Canada and will be a key player in the shipping of natural gas liquids (NGL) to Asian buyers.

In total, AltaGas has $6 billion in growth opportunities lined up for the coming years. With the addition of the WGL assets, the company now expects 80% of 2019 EBITDA to come from regulated natural gas distribution utilities and medium- to long-term contracts.

This should provide stability to the cash flow, and the jump in the rate base in the next three years should support dividend growth.

The market is still concerned AltaGas paid too much for WGL, and took on too much debt. The company initially had trouble monetizing some assets to cover the purchase, but sold a 35% stake in its B.C. hydroelectric facilities for $922 million in June. The company expects to sell additional assets in the coming months to help pay down the US$2.3 billion bridge loan it took to close the WGL deal.

Once the loan gets paid, investors should start to feel better about the balance sheet.

In the meantime, investors who buy today can pick up a monthly dividend of $0.1825 per share. That translates to an annualized yield of 7.8% at the current stock price. AltaGas bottomed out around $23 per share in early March. Today, the stock is back to $28, and investors are wondering if the coming years could see the name retest the previous high above $50.

Should you buy?

The closing of the WGL deal is good news, and management is confident the company will sort out the balance sheet concerns through additional monetization of assets and the issuing of senior debt and hybrid securities.

Dividend increases might not resume until the bridge loan is retired and the new assets begin generating revenue, but the existing distribution looks safe, and you get paid extremely well to wait for the company to grow the rate base. If you have some cash available in your dividend portfolio, I think AltaGas looks attractive right now.

This isn’t the only opportunity in the market today with huge upside potential.

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

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