Algonquin Power & Utilities (TSX:AQN)(NYSE:AQN) is a Canada-based utility company that generates and sells electricity to around one million customers through its non-regulated renewable and clean energy power-generation facilities. Its portfolio of cash-generating assets is primarily located in the United States, and AQN has grown steadily over the past 30 years through multiple acquisitions and organic growth.
Shares of Algonquin Power have relatively underperformed in the past year and have lost over 7% in 2021. Yet it is an attractive pick for investors due to its passive-income-generating capacity.
Algonquin Power is recession-proof
With all the turbulence expected in an overvalued equity market, investors need to bet on stocks that can generate regular cash flows. Almost 70% of Algonquin’s portfolio consists of essential services like regulated water, natural gas, and electricity utilities that guarantee a stable stream of baseline cash flows to the company. The essential nature of its services prevents long-term downside risk.
The company is heavily focusing on capital expenditures that can aid in expanding its renewable power operations and utility rate base. Over the next five years, $9.4 billion of projects will be due for completion, and the management expects new assets to result in 8-10% compounded annual earnings-per-share growth. Moreover, it is becoming a preferred utility partner with its “green fleet” initiative that replaces coal-fired assets with clean energy ones.
AQN stock is a Dividend Aristocrat
Algonquin Power is a Dividend Aristocrat. In the past 11 years, its dividend payouts have grown at an annual rate of 11%. Additionally, there has been a 10% rise in Algonquin Power’s dividend payments in the second quarter of this year, showcasing the company’s ability to generate predictable cash flows in good times and bad.
Also, investors who opt to reinvest through the DRIP program would receive a 5% discount on the price of the new shares, which can further add up to their future gains.
Strong operations and earnings will support dividend increases
The core operations at Algonquin Power are quite strong. As per its second-quarter report, the Canadian company had put into service approximately 1,400 megawatts (MW) of renewable energy projects and currently operates over 4,000 MW of green power.
The company’s earnings are improving as well. The second-quarter report showed Algonquin Power had recorded its revenue at $527.5 million, which was a massive 54% higher compared to the same period of last year. Similarly, the adjusted EBITDA and adjusted net earnings had also increased by 39% and 93% year over year to $244.9 million and $91.7 million, respectively.
Algonquin stock has consistently helped its investors enhance their wealth over the years. Looking ahead, it seems the stock still has a very bright future given its low business risk and diversified portfolio of regulated assets that are capable of driving its cash flows.
Also, there are robust growth opportunities in the renewable energy segment to which the company is slowly transitioning. With a forward price-to-earnings of 25 times AQN stock is reasonably valued and remains a top bet for income-seeking investors.