Is Algonquin Power & Utilities Corp (TSE:AQN) An Attractive Dividend Stock?

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Algonquin Power & Utilities Corp (TSX:AQN) has returned to shareholders over the past 10 years, an average dividend yield of 6.00% annually. Does Algonquin Power & Utilities tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Algonquin Power & Utilities

5 questions to ask before buying a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is its annual yield among the top 25% of dividend-paying companies?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

TSX:AQN Historical Dividend Yield Jun 20th 18

How well does Algonquin Power & Utilities fit our criteria?

The company currently pays out more than double of its earnings as a dividend, according to its trailing trailing twelve-month data, which suggests that the dividend is not well-covered by earnings by any means. However, going forward, analysts expect AQN’s payout to fall into a more sustainable range of 82.18% of its earnings, which leads to a dividend yield of 5.56%. Moreover, EPS should increase to $0.44, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Not only have dividend payouts from Algonquin Power & Utilities fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends. Relative to peers, Algonquin Power & Utilities generates a yield of 5.20%, which is on the low-side for Renewable Energy stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Algonquin Power & Utilities for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three key factors you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for AQN’s future growth? Take a look at our free research report of analyst consensus for AQN’s outlook.

2. Valuation: What is AQN worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AQN is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.