Buy Algonquin Power for renewables exposure, this fund manager says

For many years now, Algonquin Power & Utilities (Algonquin Power & Utilities Stock Quote, Chart TSX:AQN) has been a gem of a stock to own —who wouldn’t want a defensive name that grows its dividend even as the stock climbs higher?

And while AQN fell back on Wednesday with the rest of the market, there’s little to worry about with this long-term play in the renewables sector, says Andrew Pyle of Scotia Wealth.

Algonquin dipped slightly in tandem with the general selloff yesterday, falling off a new high of C$15.98 set on Tuesday. The stock continues to trend higher, having now gained almost 16 per cent for the year and 95 per cent over the past five years. That’s on top of its dividend which currently has a yield of 4.8 per cent.

Earlier this month, Oakville, Ontario-based Algonquin reported its first quarter fiscal 2019 financials, generating revenue of $477.2 million, down from $493.8 million a year ago and lower than the consensus estimate of $498 million. That came with EPS of $0.19 per share on an adjusted basis, which was also a consensus miss compared to the Street’s $0.22 per share. (All figures in US dollars unless otherwise noted.)

Pyle, senior wealth advisor and portfolio manager at Scotia Wealth, says that while Algonquin Power may fall back even on days when the market should be favouring defensive stocks, over the longer term, investors will be rewarded with a solid performer.

“At the end of the day, we look at Algonquin as a renewable, so it’s a substitute and what happened to the substitutes [on Wednesday] and what happened to crude was that we had a risk-off sentiment that pervaded the market,” said Pyle, in conversation with BNN Bloomberg on Wednesday. “So you will find situations where the textbook analysis of, say, an interest-sensitive stock like Algonquin that says when rates go down, my stock must always go up, that breaks down. It doesn’t always hold and [Wednesday] was a good example.”

“The other reason why people would want Algonquin [in their portfolio] is because they want that renewable exposure, so if you’re looking at this as we do, as a long-term play, renewable energy is a long-term play,” he says. “If you firmly believe that we’re going to see renewables increase in terms of market share, in terms of demand and the representation of the stock market, then you want a company like this. Don’t look at the day-to-day stuff, you’re looking at this for ten to 20 years.”

Earlier this month, Algonquin announced that it would be raising its dividend by ten per cent, a move that was supported by “another year of successful execution of our strategic plan and growth of our earnings and cash flows,” said Algonquin CEO Ian Robertson.