Algonquin Power & Utilities Corp

I do not own this stock (TSX-AQN). I started to track utilities that were not pipelines a while back as I have a lot of money in pipelines and that I might want to move some of this money into other types of utilities. I do think that utilities into new types of power generation are not going away. I started to track this particular utility in 2011.

This company was an income fund prior to 2009. It became a corporation that year and decreased its dividends by almost 98%. Company said that it wanted to become a dividend paying growth oriented company. The Dividend Payout Ratios changed from almost 300% of earnings prior to 62% in 2009. DPR for cash flow went from 89% in 2008 to 45% in 2009.

Dividends were increased twice in 2011 for a total dividend increase of 16.7%. Unfortunately, DPR for earnings is getting high again with the DPR for earnings at 130% for 2011. The DPR for cash flow is better at 50.8%.

Total return over the past 5 and 10 years is very low. The 5 year total return is a negative 2.5%. Dividend return was 5.9% per year. The capital loss each year was 8.4%. The 10 year total return was 3.7%. Dividend return was 8.4%. The capital loss each year was 4.7%.

The current 5 year median dividend yield is 9%. The dividend yield has decreased considerable and is currently at 4.3%. You are not going to see again the high dividend yields that occurred when this stock was an income trust. It was expected that x-income trusts would end in a 4% to 5% dividend range. This stock is coming in in this range.

The problem with this stock is that the number of shares went up some 42% in 2011, but other per share values did not go up the same. The increase in shares for 2011 was due to conversion of convertible debentures (16%) and shares issuance (26.6%). The convertible debentures have interest rates of $6.35% to 7.5%. There was a further 7.6% increase in shares in the first quarter due to debenture conversion.

Note that in some cases, the conversion stock price is low. Convertible Debentures Series 3 has a conversion price $4.20, which is currently a 55% discount to the current stock price. Series 1A conversion price was $4.08 an even better discount of 59.6% to current price. Series 2A conversion price was $6.00 which is only an 8.5% discount to the current price. There are currently just some Series 3 debentures still to be converted.

Usually, a company increasing their dividends signals that they expect a rosy future. However, there are lots of analysts following this stock and none believe that they will be able to cover the current dividends per share by the earnings per share in 2012 and some even think this is true for 2013 as well.

The dividend is $0.28 per share. The consensus EPS for 2012 is $.020, with a range of $.011 to $.027. The consensus EPS for 2013 is $.030 with a range of $.18 to $0.52.

Earnings per Share (EPS) over the past 5 years are down by 12.5%. EPS have also not grown much over the past 10 years and its growth is just 1.6% per year. Analysts expect no growth in EPS for 2012 and just good growth in 2013. EPS for the first quarter of 2012 came in right at the consensus level. Net income is up by 14.8% per year over the past 10 years. However, net income over the past 5 years shows no growth at all. On the other hand, this company only had one year of earnings loss and that was in 2008.

Revenue growth is not bad with 5 and 10 year growth at 7.4% and 19.9% per year, respectively. However, if you look at revenue per share, it is down by 5.2% per year over the past 5 years. It is up by 8.7% per year over the past 10 years and this is a nice increase. Analysts expect good growth in revenue and revenue per share in 2012 and 2013. But again, the revenue will probably grow faster than revenue per share.

Cash flow is up over the past 10 years, but not over the past 5 years. Cash Flow per Share is up just 2% per year over the past 10 years, but is down some 11.5% per year over the past 5 years. They have had no years of negative cash flow over the past 10 years.

Book Value per share is down 9.2% per year and 7.3% per year over the past 5 and 10 years. For most income trust stocks book value declines. However, for this stock, book value continued to decline to 2010. Since then it is up only modestly.

Debt ratios have mostly been fine on this stock. The current Liquidity Ratio is 1.51. It has been lower as the 5 year median ratio is just 1.15. The current Debt Ratio is 1.90. The 5 year median Debt Ratio is fine also at 1.62. The current Leverage and Debt/Equity Ratio are also ok at 2.25 and 1.18.

The Return of Equity has always been low with the 2011 at 5.6% and the 5 year median at 5.1%. Until this year, the ROE based on comprehensive income was always much lower than the ROE on net income, with the 5 year median ROE on comprehensive income just 1%. The ROE on comprehensive income for 2011 was 6.1%. They have changed the way they report on comprehensive income in 2011, which seems to be how they report on foreign currency transactions. In 2011, 68% of their revenue is from the US.

Another thing about this company is that they did not switch their accounting to IFRS. Some TSX companies have the option of going to US GAAP instead and this company chose this route.

In conclusion, I note that they say they want to be a "dividend paying growth oriented company". However, I find that their Dividend Payout Ratios are too high for such a company. This is especially true of the DPR for earnings. Tomorrow I will look at the stock price and what analysts say about this company.

APUC owns and operates a diversified portfolio of clean renewable electric generation and sustainable utility distribution businesses in North America. Liberty Water Co., APUC's water utility subsidiary, provides regulated water utility services. Through its wholly owned subsidiary Liberty Energy Utilities Co., APUC provides regulated electricity and natural gas distribution services. Algonquin Power Co., APUC's electric generation subsidiary, includes renewable energy facilities and thermal energy facilities. Its web site is here Algonquin Power. See my spreadsheet at aqn.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.