I do not own this stock of Algonquin Power & Utilities Corp (TSX-AQN, NTSE-AQN). I have a lot of my utility money in pipelines. I think that sometime in the future I may have to move this money to other utilities. I do not think that the new types of power generation are going to go away and might at some time be a good investment. This is a dividend paying utility stocks. I got it off a list of dividends paying utility stocks. Note that Emera Inc. owns shares in Algonquin Power and I own Emera.
When I was updating my spreadsheet, I noticed that Revenue is increasing fast, but Revenue per share is not. The Revenue over the past 5 and 10 years have increased by 14.8% and 24.7% per year. Revenue per Share over the past 5 years has gone down by .6% per year and for the past 10 years has gone up 5.6% per year. The reason for this is the increase in outstanding shares over the past 5 and 10 years at the rate of 18.8% and 20.2% per year. This is not a good situation. They are issuing a lot of shares.
The dividend yields are moderate and sometimes higher with dividend growth being been moderate lately. The current dividend yield is moderate (2% to 4%) at 4.49%. The dividend growth is moderate (8% to 14% range). See the chart below. The last dividend increase was for 10% and it occurred this year. Dividends have been paid in US$ since 2014.
The Dividend Payout Ratios (DPR) need improvement. The DPR for EPS for 2019 is 52% with 5 year coverage at 92%. The DPR for CFPS is 49% with 5 year coverage at 45%. The DPR for Free Cash Flow is 417% with 5 year coverage not calculable because of negative Free Cash Flow. The Dividend Coverage Ratio for 2019 is 0.24.
Debt Ratios need improving. The Long Term Debt/Market Cap Ratio is 0.50 with a current ratio of 0.56 due to a 9% increase in debt. The Liquidity Ratio is 0.91. If you add in cash flow after dividends it is 1.28. If you add back in the current portion of the long term debt it is still low at 1.29. The Debt Ratio is good at 1.71. The Leverage and Debt/Equity Ratios for 2019 are 2.96 and 1.67 is are fine, but the current ones are 3.10 and 1.81. The 5 year median ratios are 3.37 and 1.98. The Leverage Ratio is high.
The Total Return per year is shown below for years of 5 to 22 to the end of 2019 CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 14.42% | 18.45% | 13.63% | 4.82% |
| 2009 | 10 | 11.29% | 21.27% | 16.14% | 5.13% |
| 2004 | 15 | -1.81% | 8.22% | 3.72% | 4.51% |
| 1999 | 20 | -1.25% | 9.90% | 3.57% | 6.32% |
| 1997 | 22 | -0.84% | 8.42% | 2.57% | 5.85% |
The Total Return per year is shown below for years of 5 to 16 to the end of 2019 US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2014 | 5 | 11.87% | 15.69% | 11.31% | 4.38% |
| 2009 | 10 | 8.91% | 18.96% | 13.87% | 5.09% |
| 2004 | 15 | -2.30% | 8.08% | 3.24% | 4.85% |
| 2003 | 16 | -0.73% | 8.96% | 3.53% | 5.43% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 23.61, 25.80 and 27.99. The corresponding 10 year ratios are 23.61, 26.55 and 29.39. The corresponding historical ratios are 23.68, 27.16 and 30.43. The current P/E Ratio is 31.36 based on 2020 EPS estimate of $0.60 ($0.44 US$) and a stock price of $18.76. This stock price testing suggests that the stock price is relatively expensive. This is in CDN$.
I get a Graham Price of $11.05. The 10 year low, median, and high median Price/Graham Price Ratios are 1.24, 1.40 and 1.58. The current P/GP Ratio is 1.70 based on a stock price of $18.76. This stock price testing suggests that the stock price is relatively expensive. This is in CDN$.
I get a 10 year median Price/Book Value per Share Ratio of 1.59. The current P/B Ratio is 2.07 based on a Book Value of $3,516M, Book Value per Share of $6.68 and a stock price of $13.81. The current ratio is 30% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive. This is in US$. You would get a similar result in CDN$.
I get a 10 year median Price/Cash Flow per Share Ratio of 9.92. The current P/CF Ratio is 12.67 based on a Cash Flow per Share of $1.09, Cash Flow of $574M and a stock price of $13.81. This stock price testing suggests that the stock price is relatively expensive. This is in US$. You would get a similar result in CDN$.
I get an historical median dividend yield of 7.75%. The current dividend yield is 4.50% based on dividends of $0.84 ($0.62 US$) and a stock price of $18.76. The current dividend yield is 42% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. This is in CDN$$.
I get a 10 year median dividend yield of 4.56%. The current dividend yield is 4.50% based on dividends of $0.84 ($0.62 US$) and a stock price of $18.76. The current dividend yield is 1.5% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and but above the median. This is in CDN$$.
The 10 year median Price/Sales (Revenue) Ratio is 2.74. The current P/S Ratio is 3.99 based on 2020 Revenue Estimate of $1,823M, Revenue per share of $3.46 and a stock price of $13.81. The current ratio is 43% above the 10 year ratio. This stock price testing suggests that the stock price is relatively expensive. This is in US$. You would get a similar result in CDN$.
Results of stock price testing is that the stock price is probably relatively expensive. The 10 year median dividend yield test shows that the current dividend yield is about where the 10 year dividend yield is and give a reasonable price. However, this is not confirmed by the P/S Ratio test which shows the stock price as expensive.
The problem with the historical dividend yield test is that this company used to be an income trust and as such had very high dividend yields. They still have not got their Dividend Payout Ratio for EPS under control so the dividend is probably much higher than it really should be. So, this really points to a problem also with the 10 year median dividend yield test. The rest of the tests show the stock price is relatively expensive and I see no problem with any of these tests.
Is it a good company at a reasonable price? I do see this stock as being currently expensive. It would not be my favourite utility at the moment. It needs to improve both DPR and debt ratios. They are raising cash by issuing lots of shares and therefore diluting current shareholders stake in the company.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (5), Hold (6) and Underperform (1). The consensus would be a Buy. They are issuing a lot of shares. He 12 months stock price is $19.70 ($14.49 US$). This implies a total return of 9.51% with 5.01% from capital gains and 4.50% from dividends.
Analysts on Stock Chase seem to like this stock. According to Nelson Smith on Motley Fool this is a buy and hold forever stock for your TFSA. A writer on Simply Wall Street worries about the company’s debt and the fact that FCF cannot cover the dividend. They also say that the dividend has been cut in the past 10 years and this worries them also. A writer on Simply Wall Street talks about what the P/E on this stock might be telling us. The blogger Dividend Earner did a writeup on this stock in February of this year.
Algonquin Power & Utilities Corp is a North American generation, transmission, and distribution utility. Its web site is here Algonquin Power & Utilities Corp.
The last stock I wrote about was about was Intertape Polymer Group Inc (TSX-ITP, OTC-ITPOF) ... learn more. The next stock I will write about will be CI Financial Corp (TSX-CIX, OTC-CIFAF) ... learn more on Monday, June 22, 2020 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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