Yahoo Finance Algonquin Power stock plunges by double-digits on 40% dividend cut
Shares of Algonquin Power & Utilities (AQN.TO)(AQN) fell sharply on Friday as the company slashed its dividend by 40 per cent. At the same time, Algonquin says it has struck a deal to sell its renewable energy business for up to US$2.5 billion. Both moves follow the company’s plan to narrow its focus as a “pure-play” utility.
Oakville, Ont.-based Algonquin cut its quarterly dividend to US$0.065 per common share from US$0.1085 U.S. cents, where the payout has sat since a previous 40 per cent cut in early 2023. The company's dividend has been historically high relative to peers, drawing criticism from activist investors and stock analysts amid concerns about the company's debt load.
Toronto-listed shares closed at their lowest level since November on Friday at $7.42, a loss of 12.6 per cent.
RBC Capital Markets analyst Nelson Ng says he expected a 30 per cent dividend cut in a note to clients on Friday. In previous research, he said a lower quarterly payout is needed to improve Algonquin's investment profile.
"We believe the company would be starting on the wrong foot if it emerges as a utility pure-play and investors are immediately focused on dividend sustainability and the capex funding plan," he wrote in July. "The company will be starting on a clean slate, and we believe it has the rare opportunity to shape its balance sheet and capital allocation strategy to attract new investors."
Algonquin reported second-quarter financial results on Friday, swinging to a US$200.8 million profit from a US$253.2 million loss in the same quarter last year. Revenue fell five per cent year-over-year to US$598.6 million for the three months ended June 30. The company ended the quarter with US$8.3 billion in long-term debt.
The deal to sell the renewables business comes about a year after CEO Christopher Huskilson replaced previous chief executive Arun Banskota on an interim basis. His appointment came as activist investors lobbed criticism at the company for its tumbling share price as well as debt level, following a series of acquisitions.
On Friday, Algonquin announced a long-awaited deal to sell its renewable energy business. New York-based LS Power has agreed to purchase the assets for up to US$2.5 billion, excluding debt. Algonquin says the deal is expected to close in the fourth quarter of 2024 or the first quarter of 2025. The company says the proceeds will mainly go towards recapitalizing its balance sheet.
“The transaction proceeds and valuation are compelling,” Huskilson said on a conference call with analysts on Friday morning. “I'm more convinced than ever that our current path towards a pure-play regulated utility supports our goal to create long-term value."
Algonquin's renewable energy business spans 46 solar, wind, hydro, renewable gas, and thermal facilities in 11 U.S. states and six Canadian provinces. Three-quarters of the assets are located in the United States, according to the company.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple and Android.
