This Top Canadian Utilities Stock Is a Sneaky ESG Play

Here’s why I think investors would be remiss to ignore the ESG catalysts underpinning Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN).

| More on:

Utilities stocks are all the rage these days. I mean, those concerned about the potential of volatility on the horizon are right to load up on these defensive names.

However, some utilities plays are better than others.

I’m going to highlight why I think Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) is one of the best picks in this space. Indeed, this stock has everything long-term investors want. It’s a growth, value, and income play.

However, I think Algonquin is also a sneaky ESG play.

Let me explain.

ESG boom not usually a catalyst for utilities companies

Most utilities players are in relatively boring industries, with little in the way of catalysts.

Yes, these companies provide highly stable cash flows. They’re extremely defensive, and pay high dividend yields. That makes them perfect holdings for retirement.

All those things are true about Algonquin. However, the company’s rather large portfolio of renewables assets stands out as a unique reason to own this stock relative to its peers.

Indeed, approximately 35% of the company’s revenue is derived from its renewables segment. Algonquin has been on a shopping spree in recent years, picking up these assets at relatively attractive prices. As the ESG boom has taken off, Algonquin’s asset portfolio has appreciated nicely.

However, I think long-term investors should certainly consider this aspect of Algonquin’s business model as a key underlying investment thesis for owning this stock. Yes, there are concerns that the ESG boom could eventually be considered a “crowded trade.” However, I think this catalyst has legs. As efforts to combat global warming intensify, companies like Algonquin transitioning to an ESG-friendly model will gain even more exposure among environmentally-conscious investors.

But that’s not all.

Besides this impressive ESG catalyst, Algonquin also stands tall on its core business model.

Algonquin’s business model is impressive

Yes, around one-third of the company’s revenue comes from renewables.

However, the other two-thirds is derived from the highly stable cash flow-generating utilities business I mentioned previously. Long-term investors like this.

Algonquin’s ability to raise its dividends consistently relies on the cash flows from this core business. As investor search for more defensive value names, I think stocks like Algonquin will come into even greater focus. Indeed, the company’s recently announced dividend hike of 10% speaks to this. I think more double-digit dividend increases are on the horizon, a fact which income investors should factor in today.

The company’s hybrid business model provides a level of growth and defensiveness that’s rare in today’s market. Algonquin has a unique selling proposition for investors that’s unlikely to be unfashionable anytime soon.

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.

More on Dividend Stocks

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $625 Per Month?

This retirement passive-income stock proves why investors need to always take into consideration not just dividends but returns as well.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Secure Your Future: 3 Safe Canadian Dividend Stocks to Anchor Your Portfolio Long Term

Here are three of the safest Canadian dividend stocks you can consider adding to your portfolio right now to secure…

Read more »

money goes up and down in balance
Dividend Stocks

Is Fiera Capital Stock a Buy for its 8.6% Dividend Yield?

Down almost 40% from all-time highs, Fiera Capital stock offers you a tasty dividend yield right now. Is the TSX…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use Your TFSA to Double Your TFSA Contribution

If you're looking to double up that TFSA contribution, there is one dividend stock I would certainly look to in…

Read more »

woman looks at iPhone
Dividend Stocks

Retirees: Is TELUS Stock a Risky Buy?

TELUS stock has long been a strong dividend provider, but what should investors consider now after recent earnings?

Read more »

Concept of multiple streams of income
Dividend Stocks

Is goeasy Stock Still Worth Buying for Growth Potential?

goeasy offers a powerful combination of growth and dividend-based return potential, but it might be less promising for growth alone.

Read more »

A person looks at data on a screen
Dividend Stocks

How to Use Your TFSA to Earn $300 in Monthly Tax-Free Passive Income

If you want monthly passive income, look for a dividend stock that's going to have one solid long-term outlook like…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Passive Income Seekers: Invest $10,000 for $38 in Monthly Income

Want to get more monthly passive income? REITs are providing great value and attractive monthly distributions today.

Read more »