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Time to Add This Defensive Investment to Your Portfolio

One of the easiest things to do that will have the most long-lasting impact on your retirement portfolio is to start growing your nest egg from an early age. There really is no substitute for having three or even four decades worth of dividends and compounded stock growth to make your golden years really enjoyable.

One such investment that is a screaming opportunity at the moment is Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN).

Algonquin’s business is well diversified and growing

The allure of the utility business model is well known, but there are two ways Algonquin differs from more traditional utilities that potential investors should take into consideration.

The first point has to do with Algonquin’s structure. Algonquin has two subsidiary companies: Liberty Power and Liberty Utilities. Liberty Power is a renewable energy company that has over 35 renewable and clean energy facility that include wind, solar, hydro, and thermal elements across seven different U.S. states and five provinces. In total, the subsidiary has an installed capacity of 1,050 MW with most of that coming from wind energy, but Algonquin has stated that its energy mix will become more diversified over the next few years.

Liberty Utilities has operations in a dozen U.S. states, providing water, gas, and electric utilities to well over 750,000 customers.

Finally, there’s Algonquin’s lesser-known presence outside North America that’s worth noting, where the company has a joint venture with Abengoa SA of Spain. The agreement forged last year is aimed at adding a variety of global renewable energy assets to Algonquin’s already impressive portfolio.

Strong quarterly results and dividend

Algonquin reported results for the second fiscal quarter of 2018 in August of this year that were, in a word, impressive. Revenue for the quarter realized a 9% gain over the same period last year to US$366.2 million, while net earnings attributable to shareholders came in at US$65.5 million, or US$0.14 per share, handily beating the US$35.3 million, or US$0.09 per share, reported in the same quarter last year.

On an adjusted basis, Algonquin’s earnings for the second quarter came in at US$50.9 million, or US$0.11 per share, impressively beating the same quarter last year by 29% and 22%, respectively.

Turning to Algonquin’s dividend, on offer is a mouth-watering quarterly payout that provides a 5.19% yield.

Does your portfolio really need a utility?

Utility investments are often overlooked as investments, primarily because they are labeled as boring investments that lack growth. With a majority of revenues stemming from regulated contracts that have fixed rates, the argument is that utilities such as Algonquin lack growth prospects.

That being said, the recurring and stable source of revenue that utilities earn from their customers ensures a healthy, if not an abundant source of growth and income for years to come without considerable risk.

While there are certainly higher-risk options on the market that could provide higher gains over a shorter time frame, Algonquin is well suited as a core investment to any portfolio that is built for growth. Buy it, forget about it for a few decades, and let it grow. Your future self will thank you.

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Fool contributor Demetris Afxentiou owns shares of Algonquin Power & Utilities.

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