Altagas Ltd. (TSX: ALA) is a TSX stock that pays an annual dividend of $1.26 per share, provides stability through its regulated utilities business, and offers growth in its midstream energy business. This type of stock offers strong upside with downside protection, something I think suits a retirement portfolio exceptionally well.
Here’s why I think Altagas could be a really great addition to your retirement plan.
Source: Getty Images
Consistency and predictability
Altagas is a leading energy infrastructure company that operates in two segments – the utilities segment and the midstream segment.
Its utilities business is the predictable, steadily growing one that’s backed up by regulated contracts. This allows for a smooth, consistent cash flow profile. In the company’s latest quarter, the utilities segment performed well, and its earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 10% to $134 million. This was driven by modernization investments, improved asset optimization, and colder weather.
The outlook for the utilities segment is strong, as demand is rising for all forms of energy in the US, with natural gas being critical to meet these long-term energy needs. This demand is coming from coal plant retirements, data centres, and increased industrial activity. In fact, artificial intelligence (AI) and data centre demand are expected to accelerate natural gas demand into 2030 and beyond.
Global markets offer a path to sizable growth
The midstream segment is Altagas’ higher growth business. In the latest quarter, this segment posted a 23% increase in its EBITDA, to $215 million. This was driven by record export volumes and strong margins.
Even in this higher growth segment, Altagas is focused on de-risking the business. A focus on long-term contracts means lower margins, but the benefit is increased stability, which is a trade-off that the company is more than willing to make.
Altagas continues to make progress on its major growth projects in the midstream business, with its two major projects expected to be completed by the end of 2025 and 2026. In the meantime, Altagas continues to benefit from strong Asian demand for liquified petroleum gas (LPG). In fact, the company expects this demand to increase by 30% by 2030.
Strong past and future shareholder return profile
Since 2018, Altagas’ earnings per share (EPS) have grown at a compound annual growth rate (CAGR) of 14%. Further, its annual dividend per share has grown at a CAGR of 4% to $1.26. Finally, Altagas’ stock generated a total return (dividends plus capital appreciation) CAGR of more than 20%.
Altagas’ current dividend yield is a respectable 3%. The bullish macro environment in both of the company’s segments will drive further dividend increases and additional returns for shareholders.
The bottom line
A stock like Altagas has an attractive risk/reward profile. This means that the upside is high without taking on too much risk. The security comes from Altagas’ utility segment as well as the way the company is structuring its midstream segment. The upside comes mostly from the midstream segment, which is seeing strong growth in global demand.
A TSX stock with this kind of investment profile is an ideal one for investors, especially for retirement portfolios.
