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How concerned with the current market state are you? Over the past six months, we’ve seen what can best be described as a pot rally followed by a dismal holiday season retreat and then, finally, a roaring start to the year. That roller-coaster ride can wreak havoc on a portfolio, particularly where trigger-happy investors act on short-term impulses rather than adhering to a cooler, long-term strategy.
That’s not to say some rebalancing of your portfolio is a bad thing; there are plenty of appealing investment options to consider at the moment, and one of those opportunities happens to come in the form of Algonquin Power (TSX:AQN)(NYSE:AQN).
For those that are unaware of Algonquin, the Oakville-based company is the name behind two utilities that have a growing presence in both the Canadian and U.S. markets. Liberty Power has a portfolio of over 35 renewable energy facilities across hydro, wind, thermal, and solar elements, whereas Liberty Utilities provides gas, electric, and water utility service to over 750,,000 customers in a dozen different states in the U.S.
The appeal of a renewable energy utility
Utilities make incredible investment options, irrespective of whether you’re a young investor just beginning to invest for the long term, or a seasoned veteran looking for a growing source of income. Part of that appeal stems from the business model of a utility which is, in a word, incredible.
In short, utilities provide a service that we need, be it water, gas, or electricity. The rate and amount at which that utility is sold is regulated and subject to long-term, contract-fixed pricing that spans decades in duration. What this means for the utility-minded investor is an uninterrupted stream of recurring and often growing revenue that is applied towards new acquisitions and rewards shareholders through a mouth-watering dividend.
Renewable energy takes the appeal of a typical utility investment and moves it up a notch. Fossil fuel-burning utilities are on a decline, and traditional utilities that have not yet transitioned to renewable sources stand to face considerable headwinds over the next decade, as new restrictions on fossil fuel-burning facilities become the norm.
Beyond the legal and moral arguments for renewable energy, there’s also something to be said about cost. Renewable energy facilities are no longer viewed as inefficient and costly alternatives to their polluting fossil fuel peers, and that is a key point that should resonate with any investor that is seeking long-term gains.
The appeal of Algonquin
Putting both of those factors together paints a very positive picture for potential investors of Algonquin. The company’s sprawling portfolio of assets has grown in recent years thanks to a series of smart acquisitions and development initiatives, the most recent of which are a slew of seven renewable energy facilities currently under construction, all of which are slated to be operational within the next three years.
In terms of a dividend, Algonquin’s quarterly distribution currently comes out to a decent 4.57% yield, and the company has maintained annual healthy upticks to the payout going back a decade, more than doubling in that period. Looking towards the future, Algonquin continues to forecast annual growth of the dividend to come in near 6% over the next few years.
From a results standpoint, Algonquin’s highly regulated and secure business leaves little room for concern among investors. In the most recent quarter, Algonquin announced revenue gains of 3% over the same period last year to $419.9 million and adjusted EBITDA of $196.9 million.
Looking back over the full fiscal year, those growth figures for revenue and adjusted EBITDA are even more attractive, coming in with year-over-year gains of 8% and 17% higher, respectively.
In short, Algonquin makes an excellent addition to nearly any portfolio. Buy it, hold it, and watch it grow for decades.
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Fool contributor Demetris Afxentiou owns shares of Algonquin Power & Utilities.
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