Many new investors are drawn to companies that promise rapid growth, cutting-edge technologies, or the next big opportunity. But the reality is that many of the market’s top long-term performers look “boring” as they’ve earned investors’ trust through consistent execution, not big bold promises. Utility stocks have long fallen into that category.
For example, Algonquin Power & Utilities (TSX: AQN) has spent the last few years rebuilding investor confidence after a challenging period, and while the turnaround is still unfolding, its business is starting to look much healthier than its share price movement alone might suggest. For patient investors, that combination of improving fundamentals and muted expectations could be an attractive long-term opportunity.
In this article, let’s look at what’s changing at Algonquin and why this top Canadian utility stock could become a more profitable investment than you might expect.
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A utility business with a clearer direction
In short, Algonquin is a diversified international generation, transmission, and distribution utility serving more than one million customer connections across the United States and Canada. Its regulated operations include electricity, natural gas, water, wastewater, and transmission services, while the company also owns hydroelectric assets.
At the time of writing, Algonquin stock traded at $7.86 per share, giving it a market capitalization of roughly $6.1 billion. Its shares haven’t seen any major change over the last year and currently offer a quarterly dividend that translates into an attractive 4.7% annual yield.
Regulatory progress is making this utility stock more attractive
What makes Algonquin stock attractive, in my opinion, isn’t fast growth, but the company’s ability to execute consistently. During the first quarter, the utility firm secured regulatory approvals for rate-case resolutions in Missouri, California, and Massachusetts. It also filed a settlement agreement in Arizona. These milestones are important because regulated utilities rely on approved rates to recover infrastructure investments and generate predictable returns.
Its latest quarterly results also reflected the stability of its business. In the March quarter, Algonquin posted net profit of US$83.1 million, and its adjusted net profit came in at US$99.6 million.
While these bottom-line figures were slightly lower than a year ago due to weather-related impacts and higher operating expenses, approved rates at CalPeco Electric helped offset some of those pressures. More importantly, the company’s underlying regulated business continued to deliver dependable cash flows.
A stronger balance sheet supports future growth
Another factor that makes Algonquin a great utility stock to consider is its focus on improving financial flexibility. The company recently secured a US$1.2 billion senior unsecured syndicated delayed-draw term facility, which remains fully available. It also completed US$650 million of senior unsecured notes due in 2031 and US$500 million of senior unsecured notes due in 2036.
These financing efforts are refinancing Algonquin’s existing debt while supporting its transition into a more focused pure-play regulated utility. A simpler business structure should make its future earnings more predictable.
While this utility transformation might not happen overnight, the company’s progress suggests management is moving in the right direction. Continued cost discipline, prudent capital allocation, and constructive regulatory outcomes could gradually strengthen its earnings and investor confidence.
Foolish takeaway
Algonquin Power & Utilities may never be the most exciting stock on the TSX, but that’s precisely what makes it attractive. The company operates essential infrastructure, pays a solid 4.7% dividend, is strengthening its balance sheet, and continues making consistent progress toward becoming a simpler and more focused regulated utility.
As the firm continues executing its strategy and regulatory approvals support its future earnings, the market could gradually place a higher value on this business. Meanwhile, investors are also being paid to wait for that strength through a reliable dividend.
