Algonquin Power & Utilities Corp (AQN.TO)

Canadian utility companies seem to be making acquisitions for growth. She owns this in some of her utility accounts. Utilities are focused on renewables, which is a positive. A nice trend for the future. They recently made a $500 million equity issue, which is why the stock pulled back, as they usually do an issue below the market price. Longer-term, this is an attractive investment and offers an attractive dividend yield.

(A Top Pick Oct 21/16. Up 20%.) This has been a Top Pick for several years.

(A Past Top Pick Oct 28/16, Up 18%) The equity issue was sold. He still owns it and still likes it. He did not buy the issue because he already owned it. He bought it for new clients this morning below the price, however. It is a buying opportunity because it is an artificially created dip and it should go back up shortly.

This has done well, and likes how it is positioned for growth going forward. Has a fairly even split in how they generate revenue between the power generation and the distribution. We are seeing growth on both sides. On the generation side, there is lots of transparency in terms of cash flows. On the distribution side, they made the large acquisition of Empire, which has put on a lot of new clients for them. Although you have to be careful of interest sensitives, this company does have the positioning to continue to grow. Dividend yield of about 4.25%. He is still buying this for new clients.

(A Top Pick Oct 28/16. Up 24%.) In a general sense, this is like some of these growth utilities; making acquisitions in the US, and using their paper. That is what you want. If you are going to buy something for yield, you can’t just have stagnating earnings growth, you need them to have the ability to raise the dividend so that they can lean into higher rates, and the stock will continue to grow. He is hopeful that there will be another accretive acquisition coming soon.

If you are going to be in this space, you are going to have to have growth, and this company has that. This is way outperforming the group. 4.3% dividend yield. (See Top Picks.)

A good, long term investment. The yield is very attractive. If there is a spike in interest rates, all yields in utilities will pull back. The company has done well.

Ranks in the top 10% of his quant model. Year-over-year earnings gain of 62% plus 43% sales growth. The outlook is positive. Earnings are expected to grow 15% in the coming year. There is a great opportunity for them to be able to continue to grow for the next 2-3 years.

His problem with utilities is that they are not growing organically, but are making acquisitions for growth. As interest rates start to rise, that could cause big issues. Half their business is regulated, but half is not. On the regulated side, they have no choice but to have debt preferred and equity issues. On the nonregulated side, that is where they want to make the bulk of their money because if the renewable assets were to decline, it is going to affect their business. The good news on this is that the US acquisition is pretty much shifting from coal to gas, and they are starting to see better margins.

He does not know the seasonality. Utility stocks do well in the summer. We are in a trading range. We are testing close to the bottom. He would be a bit careful here. Utilities typically underperform the market about now. He is neutral.

The only bad thing is that most earnings are from the US, and the rising Cdn$ is hurting them a little. It has an excellent growth rate. He is looking at 16% EPS over the next couple of years. Trades at the same multiple as its peers, 17X. Has a 61% payout ratio. The Empire acquisition is proceeding very well. If you can get this in the $12 range, you should buy it.

A core position for a long time for him. He buys more on dips. They should be able to grow for many years to come. The dividend is in US$ and should continue to grow.

Canada has done an extremely good job of acquiring companies in the US in the utility sector. Something like 70% of this company’s earnings comes from the US. Management has done an excellent job. They have a target of increasing their dividend 10% per year over the next 5 years, and possibly longer. Dividend yield of 4.6%.

A very nice small-cap and has done very well. Continue holding this if you have it. It has a 4.4% dividend yield.

(Top Pick Oct 28/16, Up 18.83%) It will not do 18% in the next year. It is planning an acquisition. He predicts above average returns, however. It will be important to them to continue making acquisitions for growth.