Algonquin's Renewable Portfolio

The last post “Renewable Dividends” on July 9th introduced a new series on dividends from renewable energy posed the question, “Who doesn’t like a plump dividend?”  Most investors would say yes and many might be impressed with Canada’s Algonquin Power & Utilities Corporation (AQN:  NYSE).  Algonquin is paying a $0.68 dividend per share annually, providing a yield of 4.54% at the current share price level.

Algonquin provides regulated water, electricity and natural gas services to customers across North America.  Interestingly, Algonquin is not a reformed utility with a history of power generation from fossil fuel.  The company got its start in the 1980s with a hydroelectric power project in Ontario, Canada.  Today the company’s electricity portfolio includes a mix of wind, solar, hydro and thermal power sources totaling three gigawatts.

Investors hungry for dividend payments need to know that the payout is secure.  Thus, Algonquin’s ability to generate cash and manage its cash resources must be carefully scrutinized.  In the twelve months ending March 2021, the company’s operations generated $194.8 million in cash flow. Against total revenue of $1.85 billion, that represented a sales-to-cash conversion rate of 10.5%.  This is decent enough accomplishment, but far lower than the average annual rate of 50% sales-to-cash conversion accomplished over the last three years. 

Cash in the bank totaled $142.5 million at the end of March 2021.  That amount of cash is most likely adequate for working capital purposes.  Indeed, in recent times management has allowed cash balances to range even lower to $60.3 million at the end of June 2020.  Given that long-term debt has inched higher over the last couple of years, a bit more cash in the bank could be helpful.  At the end of March 2021, long-term debt totaled $5.7 billion, bringing the debt-to-equity ratio to 102.71.  This compares to a ratio of 87.6 four years ago and 111.04 in 2019.

Cash is one thing, but dividends are elective.  Investors need to have confidence management will keep dividend payouts a priority against investment objectives or pressure to buy back stock.  Algonquin leadership has distinguished its reputation with a consistent, uninterrupted dividend payment since the first dividend in 2013.  What is more, the payout has been increased several times over the years, providing an element of protection against inflation.

Algonquin ticks many boxes, which is probably why the stock price has climbed steadily since its public debut.  A recent pullback in the share price since the beginning of 2021, provides an opening for the contrarian investor looking to grab shares in a promising company with a plump dividend.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.