Algonquin Power & Utilities (TSX:AQN) has raised some red flags recently, both with its declining stock performance and dividend cut, which could be a concern for income-focused investors. While it has been a popular choice in the past, the instability in its earnings and financials suggests that other utility stocks with more stability might be better long-term options. Today, let’s look at some options.
What happened?
Algonquin has been showing signs of negative momentum on the TSX. This may raise concerns for investors. Over the past few quarters, the company has struggled to maintain steady growth, reporting a decrease of 20% in adjusted net earnings for the first quarter (Q1) of 2024. Additionally, while net utility sales saw a modest 6% increase, the drop in earnings per share (EPS) by 18% compared to the previous year signals financial strain.
Q2 2024 also highlighted some of these challenges. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 12%, and adjusted net earnings rose by 16%. Yet the company announced its intention to sell its renewable energy business for up to $2.5 billion. This sale is part of a broader strategic shift to focus solely on regulated utilities. And this may unsettle some investors who were drawn to AQN’s diversified portfolio.
The divestment of its renewable energy assets, coupled with a cut in capital expenditures and dividends, indicates that AQN is aiming to stabilize its financials. However, this transition raises questions about its future growth prospects, and other utility stocks with more stable earnings might be safer options for investors looking for long-term, reliable returns.
Another option
Hydro One (TSX:H) has been gaining positive momentum on the TSX, showing strength through consistent financial performance and strategic initiatives. In the most recent second quarter of 2024, Hydro One reported a year-over-year increase in basic earnings per share (EPS) to $0.49, up from $0.44 in the same period in 2023.
This growth was driven by higher revenues resulting from Ontario Energy Board (OEB)-approved transmission and distribution rates. Along with an uptick in average monthly peak demand. These solid financials demonstrate Hydro One’s ability to adapt to changing market conditions while continuing to enhance its operational efficiency.
The company’s capital investment strategy is also a key driver of its success, with $818 million invested in Q2 2024. Significantly up from $649 million the previous year. This includes the filing of a leave to construct the St. Clair Transmission Line, an important project supporting economic growth in Ontario. Hydro One’s commitment to strengthening its infrastructure, coupled with strategic partnerships like those with First Nations, positions the company well for long-term growth.
Plus, Hydro One continues to demonstrate strong corporate responsibility. In fact, it was named one of Canada’s Best Employers for the ninth consecutive year and recognized on the 2024 Best 50 Corporate Citizens list. With ongoing sustainability initiatives and a steady dividend yield, Hydro One presents itself as a reliable investment option, especially for those seeking long-term value in the utilities sector.
