The best dividend stocks have a way of beating the market on a long-term basis. This is because these dividend stocks have regular dividend payments that are increasing over time, as well as a steady and solid business.
Let’s take a look at Altagas Ltd. (TSX:ALA), a dividend stock that I think is set for continued TSX outperformance.
A brief performance review of this dividend stock
Given the strong performance of the TSX Index over the last few years, it’s admittedly hard to find a dividend stock that has outperformed it. Yet, Altagas has. In the last five years, the TSX has risen a very impressive 47%. Altagas stock, on the other hand, has risen an even more impressive 65% –and this is not including the annual dividend yield of 4% or so.
So, what’s up with Altagas? Why has this utility company beaten the TSX so handily? And why do I think it will continue to do so in the future?
Altagas has access to global energy markets
Altagas’ midstream business has been experiencing significant growth over the last few years. Today, the company continues to see record global export volumes of propane and butane. In fact, more than 128,000 barrels per day of butane and propane were put though Altagas’ facilities, which was 9% higher than the same period last year.
This is being driven by strong demand from Asia. In response to this strong demand environment, Altagas is expanding its export capacity, with two large projects progressing well at this time. The Ridley Island Energy Export Facility (REEF) is one of these projects. As a large-scale coastal terminal that will export liquified petroleum gases, it’s located optimally to serve the fast-growing Asian market.
All of this is a strong indication of the type of growth that we can expect in the next few years. And this growth is a relatively low risk growth plan, as the company’s track record for successful project execution is strong. In fact, its last $1.5 billion project series was on time and came in 8% below budget.
Safe and consistent growth of the utility business
Altagas’ utilities segment is just as important as its midstream segment. This segment is positioned for strong long-term growth. This will continue to come from rate increases, new customers and population growth. It will also come from the expected boost in energy demand from data centres.
In fact, analyst estimates are calling for data centre power demand to triple by 2030. Also, it’s expected to be 10% of US power demand by the end of this decade. Natural gas, and Altagas, will play a critical role. As evidence of this, we can look to the fact that Altagas is in discussions with data centre developers for both primary and backup energy supply.
Final Thoughts
Altagas’ most recent quarterly result was a reflection of all of this positive momentum. Normalized earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $294 million, 17% higher than the same period last year, and earnings per share (EPS) nearly doubled to $0.14.
All of this has given Altagas stock an enviable dividend track record, which I expect will continue. Since 2019, Altagas’ annual dividend has increased 272%, or at a CAGR of 30% – and its dividend yield is currently an attractive 3.9%.
The long-term growth outlook for Altagas’ business and the essential nature of it, leads me to conclude that Altagas stock will continue to beat the TSX for many years to come.
