Up until COVID-19 hit, renewable energy was all the rage in the markets, with Algonquin Power (Algonquin Power Stock Quote, Chart, News TSX:AQN) clearly benefiting from the uptick in interest over the past 12 months.
But even through rougher times like today’s, AQN is a strong defensive play, says Stephen Takacsy, whose company Lester Asset Management has been a long-time fan of the stock.
“Algonquin is a name we've owned for a long time and I’ve talked about in the past,” said Takacsy, president and CEO at Lester, who spoke on BNN Bloomberg on Tuesday.
“I think it's our largest position now or one of our largest positions —an extremely defensive name which really should be mostly unaffected by what's going on,” Takacsy said. “It has a really good mix of regulated utility and renewable power. So it's a name we really like in a sector we really like.”
Algonquin’s share price produced a tremendous return for a utility in 2019, increasing in value by 34 per cent last year. And 2020 was setting up even better, with AQN jumping 21 per cent over the first two months and hitting a high of $22.39 by March 5.
But the stock dropped like the rest of the market from that point, getting down as low as $14.00 per share before making up about half of that ground and trading around $18.00 for the past two months.
Algonquin, which has business in energy distribution, generation and transmission, gets its renewable energy status by sourcing its electricity in hydroelectric, solar, wind and thermal energy. The company sports a strong dividend currently yielding 4.6 per cent —one which Takacsy says likely won’t be sacrificed over the current economic downturn.
“I wouldn't hesitate to buy it even at these levels. The stock has gone up quite a bit in the last year but it's still reasonably valued,” Takacsy said. “You’re still getting a good dividend yield and that dividend should be growing on a yearly basis. Algonquin is probably one of the few companies that still has the ability to grow its dividend year over year, even in the current context.”
AQN reached a recent milestone when it was included in the TSX 60 Index of large-cap stocks along with Canadian Apartment Properties REIT, while the index dropped two Canadian icons from the grouping in Bombardier and BlackBerry.
Algonquin last reported earnings on May 7 where revenue for the period ended March 31, 2020, came in at $464.9 million, a three-per-cent drop from $477.2 million in Q1 2019, while adjusted EBITDA grew five per cent year-over-year to $242.2 million.
At the time, management slightly revised its adjusted net earnings guidance for fiscal 2020 down from between $0.68 and $0.70 per share to between $0.65 and $0.70 per share, citing unfavourable weather impact over the first quarter along with the COVID-19 pandemic.
“APUC’s strong and resilient business model allowed the Company to continue growing in the first quarter of 2020 while navigating through what was a challenging weather environment,” said Ian Robertson, CEO, in the first quarter press release.