For investors who are on the quest for the best energy or utilities plays, I have two excellent options today. Both of these stocks are trading below the $30 level right now. Accordingly, these picks are ideal for individuals who are looking to make some small additions to their portfolio this spring.
So, let’s jump into it.
The fight against climate change is gradually gaining momentum, and it appears that governments and investors are shifting their focus toward ESG plays. This shift in investment interest could indeed be quite lucrative for companies like Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) that have been making significant investments in high-quality, renewable power assets recently.
There is no doubt that Algonquin’s timing in acquiring these assets was spot on. Indeed, Algonquin’s renewables portfolio is attracting a lot of attention right now as it generates roughly 30% of this Oakville-based company’s revenue. Furthermore, the regulated utilities business of Algonquin Power has been a cash flow-generating powerhouse for investors. These ultra-stable cash flows provide a solid base for long-term expansion and dividend increases. For long-term investors, Algonquin provides the perfect mix of growth and defensiveness today.
Algonquin has consistently raised its dividend at the double-digit clip in recent years. This year hasn’t been an exception. The company declared a dividend hike of 10%, inviting income investors to consider this stock at these levels. Currently, investors can buy AQN around $20 per share, with a dividend yield of roughly 4%. There’s a lot to like about this stock right now.
For those bullish on energy, this is a great pick. Suncor remains highly leveraged to the price of oil. Accordingly, the momentum we’ve seen in energy of late has played into some nice capital appreciation for shareholders in Suncor over the past year. As oil continues to trade around US$60 WTI, Suncor’s US$35 breakeven rate is looking pretty good right now.
Supply and demand fundamentals in the oil space are looking much better than they had previously this past year. Reports are that most of the oil glut created by the pandemic has been worked through. Yes, some supply is likely to come back online as a result of these higher prices. However, expectations are that climbing demand post-pandemic should more than offset these increases.
Suncor is a stock with excellent fundamentals and an efficient management team. I think the moves the company has made to improve its cost base and focus on its balance sheet over the past year position this energy stock well for the future.
For those seeking a solid long-term energy holding, Suncor is a great choice right now.