1 Top TSX Stock to Buy Now for Income, Growth, and Safety

I think Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) has it all: growth, income, and safety.

| More on:
growing plant shoots on stacked coins

Image source: Getty Images

A stock that has it all? That’s what we’re all looking for.

Indeed, I think Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) fits the bill nicely. This stock is typically regarded as a regulated utilities player, which it is. However, I think the company’s growing renewables business provides handsome growth for long-term investors.

Impressive growth profile driven by renewables

Algonquin’s growth profile is appealing to me right now. In particular, the company’s renewable power assets are what I think will “power” returns for investors long term. The company has engaged in a number of acquisitions in recent years that have turned out to be well timed. Indeed, a spike in interest in ESG investing has been the tide that has lifted all boats in this sector.

The company generates about one-third of its revenue from its renewable investments. Algonquin has also stated it may be looking at more acquisitions on the horizon. I think this utilities player could try to achieve a 50-50 mix of regulated utilities and renewables.

Indeed, an expansion of this line of business would be positive for this stock in a few major ways. First, renewable energy is just good business. Profit margins continue to rise, as input costs are lowered and demand for renewable power increases. This is a sector with excellent fundamentals. I think 10 years down the road, the fundamentals on this business could be much better than they are today.

Second, ESG investing mandates are a real thing. These secular tailwinds are not just a fad. I think we’re going to see capital inflows into this sector continue to surge for decades to come. Indeed, this is a very positive backdrop for investors looking for well-positioned renewables plays like Algonquin right now.

Income and safety driven by regulated utilities business

Algonquin’s growth overlay is very nice. However, I think the company’s underlying regulated utilities business (which makes up the majority of its revenue) is attractive as well. This business provides the income and defensiveness component I think are critical for investors looking to hold this stock into retirement.

Indeed, Algonquin’s dividend yield of 3.5% isn’t anything to write home about. That said, this yield is bond-like. Algonquin’s core business provides cash flows which are about as stable as one could ever hope for. These cash flows support this current yield along with long-term dividend increases over time. I anticipate Algonquin will continue to hike its dividend yield in the mid- to high-single digit range long term.

The income and safety Algonquin provides really elevates this renewables stock to the top of my list. Accordingly, I don’t think many companies really compare to Algonquin right now in the utilities space on the basis of quality. This is a best-in-class stock for those looking to buy and hold for a few decades.

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 Chris MacDonald has no position in any of the stocks mentioned.

More on Dividend Stocks