Utility stocks make great additions to any portfolio. Apart from the defensive moat offered, utilities boast a stable dividend payout and growth potential. One different utility stock that has all this and more is Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN).
Not just another utility stock
Algonquin isn’t just another boring utility stock. Algonquin is a different utility stock. The utility provides gas, water, and electricity generation, distribution, and transmission services to over one million customers in North America. The Liberty Utility segment provides gas, electric, and water service to a growing number of customers across the U.S.
On the generation side of the company, Algonquin’s Liberty Power business boasts an all-renewable portfolio. The 35 clean energy facilities provide over two GW of installed capacity. Additionally, the company has over 1.6 GW of additional renewable capacity that is currently under construction. Algonquin’s renewable mix includes predominately solar, hydro, wind, and thermal elements. As with traditional fossil fuel utilities, Algonquin has long-term regulated contracts in place stipulating duration and rates.
Despite that intriguing (and profitable) setup, Algonquin is often dismissed as an investment option by many peers or lumped in with other utilities. That’s unfortunate, because Algonquin is a great investment option that is different from other utilities.
How is Algonquin a different utility stock?
There are two key points that differentiate Algonquin from its traditional utility peers.
First, there’s the renewable portfolio I mentioned above. Environmental standards are shifting towards mandating the use of renewable energy sources. Traditional fossil fuel burning utilities need to invest billions over the next few years to transition their portfolios. Algonquin is already geared up for that eventual transition, which leads me to my second point.
Algonquin has taken an aggressive stance toward growth. This runs against the common stereotype that utilities lack the incentive or ability to adequately invest in growth. This is particularly true considering the huge capital outlay that traditional utilities are facing over the next decade. Again, Algonquin is a different utility stock, and that’s a good thing.
By way of example, earlier this month, Algonquin announced the completion of the Bermuda Electric Light Company. This latest move solidifies Algonquin’s movement outside of the U.S. market, building upon its commitment towards renewable energy. The deal also adds 36,000 customer connections to Algonquin’s growing network. The acquisition will be immediately accretive to the company’s 2021 adjusted net earnings per share.
Algonquin offers something else, too
One of the primary reasons that investors flock to utility stocks is the dividends they offer. This holds true for Algonquin as well. In the case of Algonquin, the company boasts an appetizing quarterly dividend that currently works out to an impressive 4.02%.
Algonquin has also provided investors with healthy bumps to that dividend on an annual basis going back several years. For many investors, this could be the one factor that leads to investing.
In terms of results, Algonquin announced results for the third fiscal quarter of 2020 earlier this month. In that quarter, Algonquin reported revenues of US$376.1 million reflecting a 3% gain over the prior period. On an adjusted basis, the company earned US$881.1 million in the quarter. This represents an incredible 27% increase over the same period last year.
On a per-share basis, Algonquin reported adjusted earnings of US$0.15 per share, bettering the same period in fiscal 2019 by 7%.
Between the solid results, strong growth prospects, and handsome dividend, there isn’t much for investors to not love here. In my opinion, Algonquin is a great long-term investment for both growth- and income-seeking investors. Buy this different utility stock now, hold it for decades, and retire rich.
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 owns shares of Algonquin Power & Utilities.