Algonquin Power & Utilities Corp

Sound bite for Twitter and StockTwits is: Dividend Growth Utility. Stock price is probably reasonable. The main reason for the stock price testing to be so different is that although revenue has been growing faster than book value and growth is in the last 5 years. The 10 year growth is much lower than the 5 year growth. See my spreadsheet on Algonquin Power & Utilities Corp.

I do not own this stock of Algonquin Power & Utilities Corp (TSX-AQN, NTSE-AQN). This is a dividend paying utility stocks. I got it off a list of dividend paying utility stocks. Also, I own Emera Inc. and this company owns shares in Algonquin Power.

This stock started to be listed on the NYSE in November of 2016. Here is the announcement on Newswire.

This is a Canadian company that reports in Canadian dollars, but pays the dividend in US$. They are listed on the NYSE. I find this paying dividends in US$ annoying. I do not like US$ dividends as you never know exactly what you are going to get. Also, since they report in CDN$ it is hard to valuate about Dividend Payout Ratios. (It is easy to get it wrong.)

They switched to paying dividends in US$ in 2014. So looking at dividend growth over the past 5 and 10 years in US$ and CDN$ you get quite different values. The growth of the dividends over the past 5 years in US$ is 9.61% per year and in CDN$ is 15.87% per year. The decline in dividends over the past 10 years is in US$ at 6.46% per year and in CDN$ is 5.13% per year.

This company used to be an income trust company. As such it decreased it dividends by some 74% when it changed to a corporation. The change was in 2009 and the dividend decreases was in 2008. The company started to increase their dividends again in 2010.

The Dividend Payout Ratio for 2016 was high at 123% and it has a 5 year median of 123% also. However, they did have a tax pool that will probably last until 2019. Also, analysts expect the DPR for EPS will be around 99% in 2017. They seem to have a good chance to have a reasonable DPR for EPS before the Tax Pool runs out.

Debt Ratios are marginal. The Liquidity Ratio for 2017 is just 0.90 with a 5 year median of 1.08. A Liquidity Ratio below 1.00 means that current cash cannot cover current liabilities. With cash flow added in after dividends it becomes 1.16. It is typical for utilities to need cash flow to get a high enough Liquidity Ratio. The Debt Ratio is 1.43 with a 5 year median of 1.81. I like both of these to be at 1.50 or above for the sake of safety.

The Leverage and Debt/Equity Ratios are even a little too high for a utility at 4.29 and 3.00. I prefer these for utilities to be below 4.00 and 3.00 respectively. For 2017 the Debt/Market Cap Ratio is 1.25. It is not good for this ratio to be close or above 1.00. If the ratio is 1.00, it means that Long Term debt is equal to the stock's market cap. However, in the first quarter it moved down to 0.89 because of lower long term debt and higher market cap.

The Return on Equity is below 10% always. The ROE for 2017 is 6.3% and the 5 year median is 5.5%. The ROE on comprehensive income is somewhat better over the past 5 years with a 5 year median of 8.9%, but the ROE on comprehensive income was 5.2% in 2017.

It is interesting to look at this company long term. The capital gain is at 0.45%, 0.61% 1.38% and 12.15% per year over the past 19, 15, 10 and 5 years. This company was listed on TSX in December 1997, 19 years ago. The total return is at 7.33%, 6.69%, 5.84% and 17% per year over the same time periods. In the early years, the return was all dividends. This can occur in income trust stock. However, once a company becomes a corporation, dividends will be lower. Before the dividends were decreased, the long term median dividend yield was 9.1%.

The 5 year low, median and high median Price/Earnings per Share Ratio are 23.61, 27.63 and 32.55. The 10 year values are 23.16, 26.55 and 29.29. The historical values are 23.75, 27.63 and 31.22. I think that these are rather high for a utility stock. The current P/E Ratio for is 22.13 based on a stock price of 13.94 and 2017 EPS estimate of $0.63. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of 10.12. The 10 year low, median and high median Price/Graham Price Ratios are 1.19, 1.40 and 1.58. The current P/GP Ratio is 1.38 based on a stock price of $13.94. This stock price test suggests that the stock price is relatively reasonable and below the median.

I get a 10 year Price/Book Value per Share Ratio of 1.49. The current P/B ratio is 1.76. The current P/B Ratio is based on BVPS of $7.22 ($2,778.6M BV) and a stock price of $13.94. The current P/B Ratio is some 29% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive.

If I use an adjusted historical median dividend yield, which I get to be 2.99%, the current Dividend yield of 4.50% is some 50% higher. The current dividend yield is based on dividends of $0.63 CDN$ ($0.47 US$), current exchange rate of 1.3453 and a stock price of $3.94. This stock price testing suggests that the stock price is relatively cheap.

The 10 year median P/S Ratio is 2.38. The current P/S Ratio is 2.49 based on a stock price of 13.94, Revenue of $2,150M and Revenue per Share of $5.59. The current P/S Ratio is some 5% higher than the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Buy and the consensus would be a Buy. The 12 month stock price consensus is $14.30. This implies a total return of 7.08% with 2.58% from capital gains and 4.50% from dividends based on a current stock price of $13.94.

Ryan Goldsman at Motley Fool calls this a defensive company. Chris MacDonald on Bay Street talks about insider buying. Tristan Rich on The Markets Daily talks about recent recommendations for this stock. See what analysts are saying about this company on Stock Chase. They remark on its recent run-up.

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 & Utilities Corp.

The last stock I wrote about was about was Power Corp of Canada (TSX-POW, OTC-PWCDF)... learn more. The next stock I will write about will be CI Financial Corp (TSX-CIX, OTC- CIFAF)... learn more on Monday, June19, 2017 around 5 pm.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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