There’s not been much to cheer about lately from renewable energy stock Algonquin Power & Utilities (Algonquin Power & Utilities Stock Quote, Charts, News, Analysts, Financials TSX:AQN), which isn’t news, as the stock fits squarely in the defensive category while offering a substantial dividend. But portfolio manager Stephen Takacsy still thinks investors should be buying AQN due to its growing stable of clean energy sources.
“Algonquin has been a long term core holding of ours. The stock had a nice run over the years but it’s been fairly range bound recently and it’s a really good time to buy it,” sats Takacsy, CEO and chief investment officer at Lester Asset Management, who spoke about Algonquin on BNN Bloomberg on Monday.
Algonquin had a good lead-up to 2021, with the stock’s ten-year return at almost 300 per cent, but AQN hit the C$20 mark back in early 2020 and has been floating around ever since. It reached a high of C$22.54 in February of this year but has since been stuck between C$19 and C$20.
That’s fine, though, Takacsy says, since the stock’s got an attractive dividend (currently yielding 4.4 per cent) and the company has been expanding through construction and acquisition and it’s had a number of new projects come online as of late.
By the end of 2020, Algonquin passed the one million customer mark, aided by two acquisitions in Empresa de Servicios Sanitarios de Los Lagos, a water and wastewater provider in Chile, and Ascendant Group, an electric utility in Bermuda. The company has also been working on its largest construction program in its history, with new renewables in Great Bay Solar, Sugar Creek Wind and North Fork Ridge Wind completed in 2020 and the completion of its Maverick Creek Wind facility in Texas earlier this year.
On the acquisition front, Algonquin also closed earlier this year the 51-per-cent interest purchase in four wind facilities under the Texas Coastal Wind Facilities banner that collectively have a generating capacity of 861 MW.
CEO and President Arun Banskota commented on the company’s growth in a recent fiscal second quarter 2021 financial report, delivered in mid-August.
”We are pleased to report strong year-over-year earnings growth in the second quarter, supported in part by the approximately 1,400 MW of renewable energy projects placed in service since August 2020 and contributions from our recent acquisitions,” said Banskota,
“In the quarter, we successfully completed our Midwest ‘greening the fleet’ initiative, which is expected to provide clean and cost effective energy solutions to our customers, aligning with our commitment to advancing a sustainable energy and water future,” he said.
Takacsy said investors can’t expect fireworks from AQN but they’re likely to get a solid return on a yearly basis.
“It’s very well balanced between regulated utilities and renewable energy, and they have some real hidden gems in there like their water utility businesses that they own in the US. It’s a really nicely diversified company, very safe, very stable and nice growth projects,” Takacsy said.
“So, yes, we do see significant upside, but remember this is very utility-like so it’s a somewhat boring stock but boring is good and the dividend is safe and we expect dividend increases at some point in the future as well,” he said.
“So, this is a really good long-term hold for conservative portfolios,” Takacsy said.
Algonquin’s fiscal second quarter featured revenue of $527.5 million, up 54 per cent year-over-year, and adjusted EBITDA of $244.9 million, up 39 per cent year-over-year. The company’s adjusted net earnings came in at $91.7 million or $0.15 per share compared to $0.09 per share a year earlier. (All figures in US dollars except where noted otherwise.)
The company spent a full $3.14 billion over the first half of the calendar year on capex, which they’re planning to top up with a $1 billion equity offering, announced in June. With the funds, AQN plans to finance or refinance investments in renewable and clean energy generation projects.
More recently, Algonquin announced earlier this month that its new green energy project, Shady Oaks II Wind Farm in Illinois, will involve a collaboration with JPMorgan Chase. The 108 MW project, which is expected to generate enough energy to power the equivalent of 32,800 US homes per year, will see JPMorgan buy about 70 per cent of the wind farm’s output as part of the company’s 100 per cent renewable energy commitment.
“We’re extremely pleased to partner with JPMorgan Chase, a global leader in the finance industry and a sustainability-focused company that is as passionate as we are about advancing renewable energy solutions,” said Brenda Marshall, Senior Vice President, Renewable Generation – Wind for Algonquin, in a September 8 press release. “Shady Oaks II is an important contributor to our goal of continuing to add low-cost renewable generation capacity into our supply mix and supports our commitment to leading the change to a greener, cleaner planet.”
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