Investing

Algonquin Power & Utilities Corp (AQN)

  • Last Updated:
  • Apr 22nd, 2022 8:29 am
[OP]
Deal Addict
Feb 26, 2017
2455 posts
3347 upvotes
DealRNothing wrote: I did know of the Chevron joint venture announcement and it did raise ??'s. Is a company that is actually working to "increase" carbon development truly meeting a renewable mandate? AQN will actually be working on-site energy needs for Chevron carbon extraction.
Yes I think the oil majors lowering their carbon footprint is part of the solution. I own ENB and have high hopes for them increasing their investment in renewable power generation. It makes sense the the biggest producers of carbon emissions are the ones who can have the biggest reduction carbon emissions.

I'm not going to invest in CVX or any other E&P oil company but that's because I don't think its a good long term investment. Despite being in a challenging industry CVX has a AA credit rating and a 145B market cap which makes them a great company to partner on renewable projects with.

For evaluating AQN, I think it needs to be done in USD as that's what they report in. I look at Fastgraphs and current yeild vs average yield. EV/EBITDA could also probably be used but I haven't looked at that. I've been adding on dips and last bought at 16.92. I think its slightly overvalued but estimates look good for the next two years.
Deal Addict
Jul 30, 2012
1462 posts
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Chance7652 wrote:
For evaluating AQN, I think it needs to be done in USD as that's what they report in. I look at Fastgraphs and current yeild vs average yield. EV/EBITDA could also probably be used but I haven't looked at that. I've been adding on dips and last bought at 16.92. I think its slightly overvalued but estimates look good for the next two years.
I run my own internal models based on company(s) fundamentals, financials/estimates. I've never relied on analyst estimates (especially for target prices) because they are notoriously wrong. I do analysis based on reporting currency & shareprice (and yes, know that AQN reports $USD). The utility/renewable sector IS overvalued on a historic/forward basis. The over-valuation is a combination of low IR's / Institutional investment. IMO, AQN has a very comparable profile to EMA/FTS and should trade more inline with their metrics. NPI is more of a true renewable along with BLX, INE, etc. That said, the sector is over-valued based on current guidance(s).

I suspect if Fall markets are "unkind", Tech/Nasdaq (worst to likely be hit), along with renewable utilities will be hardest hit (on valuations & YTD performances).

As a side note, AQN has committed to double-digit dividend growth (as ENB, too, lol) but the reality is for most companies, FCF (free cash flow) is not growing at the same pace. While retail investors may take the headline number, one needs to keep in mind the POR's (Payout Ratios). In most cases these ratios have gone up over the last few years as companies are simply not growing at the rate of their dividends. In other words, the ratio is not remaining constant. Basically, "more" cash is being paid out against FCF's.

One should not take "dividend growth" to necessarily mean "company growth" (Revenues, FCF, Earnings, etc).
[OP]
Deal Addict
Feb 26, 2017
2455 posts
3347 upvotes
DealRNothing wrote: I run my own internal models based on company(s) fundamentals, financials/estimates. I've never relied on analyst estimates (especially for target prices) because they are notoriously wrong. I do analysis based on reporting currency & shareprice (and yes, know that AQN reports $USD). The utility/renewable sector IS overvalued on a historic/forward basis. The over-valuation is a combination of low IR's / Institutional investment. IMO, AQN has a very comparable profile to EMA/FTS and should trade more inline with their metrics. NPI is more of a true renewable along with BLX, INE, etc. That said, the sector is over-valued based on current guidance(s).

I suspect if Fall markets are "unkind", Tech/Nasdaq (worst to likely be hit), along with renewable utilities will be hardest hit (on valuations & YTD performances).

As a side note, AQN has committed to double-digit dividend growth (as ENB, too, lol) but the reality is for most companies, FCF (free cash flow) is not growing at the same pace. While retail investors may take the headline number, one needs to keep in mind the POR's (Payout Ratios). In most cases these ratios have gone up over the last few years as companies are simply not growing at the rate of their dividends. In other words, the ratio is not remaining constant. Basically, "more" cash is being paid out against FCF's.

One should not take "dividend growth" to necessarily mean "company growth" (Revenues, FCF, Earnings, etc).
AQN has one more year of 10% dividend raises and then I think they're moving to a target of an 85% EPS payout target. This is similar to ENB who will have a 70% cash flow payout target (They had their last 10% dividend raise last year). I'm guessing this will settle at about 3-5% raises for ENB and probably 5-8% for AQN.

I think AQN should trade at a higher multiple than FTS and EMA as the growth has been higher (I think all 3 are good companies). I don't read much into analyst rating but I use their consensus estimates. The image below along with future acquisitions like the one announced today is where the EPS growth will come from.

Image
Deal Addict
Nov 9, 2013
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Edmonton, AB
DealRNothing wrote:
As a side note, AQN has committed to double-digit dividend growth (as ENB, too, lol).
Just as an aside, ENB is telegraphing 5-7% div growth moving forward.
Keep calm and go long
Deal Addict
Jul 30, 2012
1462 posts
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treva84 wrote: Just as an aside, ENB is telegraphing 5-7% div growth moving forward.
Yes... forward dividend growth guidance is becoming more muted (I own ENB, too)...I think most saw the last 3 years as unrealistic div increases. Given the expected IR's going forward, most utilities should target more like 3%>5% (more inline with slower Cashflow/revenue growth / inflation). Additionally, divcos at these yields do not have to (for now) compete with a sub 1% yield Bond market. Doesn't make sense to over extend the payout ratios in this environment.
[OP]
Deal Addict
Feb 26, 2017
2455 posts
3347 upvotes
DealRNothing wrote: Yes... forward dividend growth guidance is becoming more muted (I own ENB, too)...I think most saw the last 3 years as unrealistic div increases. Given the expected IR's going forward, most utilities should target more like 3%>5% (more inline with slower Cashflow/revenue growth / inflation). Additionally, divcos at these yields do not have to (for now) compete with a sub 1% yield Bond market. Doesn't make sense to over extend the payout ratios in this environment.
I think being more on the conservative side with dividend raises could be good idea as well. I'm a bit more optimistic though and think AQN dividend increases will end up in the 5-8% range after they get to their 85% payout in 2022 Smiling Face With Open Mouth. Just to point out, I'm a bit biased on AQN as its done really well for me and I've been buying it on the way up to the point of where its my 3rd largest holding.

For AQN their results are not great this year but I view that mostly as due to Covid and the additional shares that they issued. The new issue was a way to them to ensure equity funding for a while shares were at a decent price.

Dumb question but what is IR? I was thinking this has something to do with rate cases but probably I probably shouldn't assume...
Deal Addict
Jul 30, 2012
1462 posts
1954 upvotes
Chance7652 wrote: I think being more on the conservative side with dividend raises could be good idea as well. I'm a bit more optimistic though and think AQN dividend increases will end up in the 5-8% range after they get to their 85% payout in 2022 Smiling Face With Open Mouth. Just to point out, I'm a bit biased on AQN as its done really well for me and I've been buying it on the way up to the point of where its my 3rd largest holding.

For AQN their results are not great this year but I view that mostly as due to Covid and the additional shares that they issued. The new issue was a way to them to ensure equity funding for a while shares were at a decent price.

Dumb question but what is IR? I was thinking this has something to do with rate cases but probably I probably shouldn't assume...
Yes... I kinda got the bullish bias, lol Winking Face... that's what makes a market...
IR(s) = Interest Rate(s)
Sr. Member
May 24, 2018
595 posts
400 upvotes
Ontario
Although AQN pay dividends in USD, I learned today that shareholder can elect to be paid in CAD equivalent.

http://investors.algonquinpower.com/fil ... =404972727
The quarterly dividends payable on common shares are declared in U.S. dollars. Beneficial shareholders (those who hold common shares through a financial intermediary) who are resident in Canada or the United States may request to receive their dividends in either U.S. dollars or the Canadian dollar equivalent by contacting the financial intermediary with whom the common shares are held. Unless the Canadian dollar equivalent is requested, shareholders will receive dividends in U.S. dollars, which, as is often the case, the financial intermediary may convert to Canadian dollars.
The Canadian dollar equivalent of the quarterly dividend is based on the Bank of Canada daily average exchange rate on the day before the declaration date.
Looks like TDDI has been converting my USD dividends into CAD in the background all this time because I did not get the C$0.2056 per share for today's payout.

[2020-10-16] It's what TDDI do. They also *automatically* convert my Nutrien dividends in USD to CAD at a rate they determined before posting to my CAD account.
[2020-11-04] TD responded it is not an option. I do not have a paper share certificate with my name on it.
[2020-11-05] Found in the fine print on monthly statement "In any currency conversion conducted by us, we or a related party may earn revenue."
Last edited by hwyc2007 on Nov 5th, 2020 9:49 am, edited 4 times in total.
Jr. Member
Mar 16, 2009
176 posts
241 upvotes
Toronto
hwyc2007 wrote: Although AQN pay dividends in USD, I learned today that shareholder can elect to be paid in CAD equivalent.

http://investors.algonquinpower.com/fil ... =404972727

Looks like TDDI has been converting my USD dividends into CAD in the background all this time because I did not get the C$0.2056 per share for today's payout.
Journal your Algonquin shares to the USD side of the account, and you will receive your dividends in the proper USD amount without any conversion (at TDDI's dodgy rates).

I do this for all my Canadian stocks that pay their dividends in USD (Brookfield, Magna etc).
[OP]
Deal Addict
Feb 26, 2017
2455 posts
3347 upvotes
Not big news but thought I would post. AQN was upgraded by Raymond James today.

This is a different topic but interesting to read that CPX will be at 30% renewables by 2023. I own that name as well and its trading at a much lower multiple than the other IPPs.

Here is a portion of this G&M article:

https://www.theglobeandmail.com/investi ... rades-131/
In a research report previewing third-quarter earnings for renewable power producers titled A Difficult Choice: Sector Momentum or Attractive Value?, Raymond James analyst David Quezada advises investors to maintain exposure in the sector despite a recent jump in prices, noting “uncertainty remains regarding the degree multiples could continue to expand among these topical names.”

Following this rally benefitting from an ESG tailwind, Mr. Quezada did say “remaining opportunities are limited.”

“However, we do see a handful of instances where stocks with a rising proportion of renewable generation and/or attractive sustainability attributes, have not yet enjoyed a corresponding valuation lift," the analyst said. "Specifically, we highlight two names which, while not strictly renewable power, have a strong runway from an ESG perspective with significant room to reduce GHG emissions. These include Strong Buy rated Algonquin (where generation from gas is expected to decline to 25 per cent by 2023 from 45 per cent currently) and Outperform rated Capital Power which is not only increasing its renewable exposure (from 20 per cent to 30 per cent by 2023 as per our estimates), but also transitioning away from coal. Outside of the IPPs, we also continue to highlight Xebec Adsorption as a top pick with ESG friendly attributes and robust growth.”

Mr. Quezada made a series of target price changes to stocks in his coverage universe. They are:

Algonquin Power & Utilities Corp. (AQN -0.06%decrease
/AQN-T -0.29%decrease
, “strong buy”) to US$18.50 from US$18. The average on the Street is US$15.75.
Deal Addict
Jul 23, 2007
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Chance7652 wrote: Not big news but thought I would post. AQN was upgraded by Raymond James today.

This is a different topic but interesting to read that CPX will be at 30% renewables by 2023. I own that name as well and its trading at a much lower multiple than the other IPPs.

Here is a portion of this G&M article:

https://www.theglobeandmail.com/investi ... rades-131/
I also own AQN and CPX. Thanks for the update.
Deal Fanatic
Aug 17, 2008
7423 posts
7664 upvotes
Because I was pig headed, I just never owned AQN.TO. Rectified that this morning at $20.87.
Deal Fanatic
May 22, 2003
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Vancouver
Would like to add CPX but will wait for a little more pullback.
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Sep 2, 2004
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MrMom wrote: Because I was pig headed, I just never owned AQN.TO. Rectified that this morning at $20.87.
I struggle with AQN too. 5x trailing price to sales still seems high to me for a utility. Granted the revenue growth was huge from 2016 to 2017, but it has flatlined since. Is it the renewable energy play that convinced you to buy it?
Deal Addict
Dec 3, 2014
2348 posts
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Ontario
Capt. wrote: I struggle with AQN too. 5x trailing price to sales still seems high to me for a utility. Granted the revenue growth was huge from 2016 to 2017, but it has flatlined since. Is it the renewable energy play that convinced you to buy it?
Just be patient with AQN. They will no doubt dilute shareholders before long, as they historically have done, and this will provide another buying opportunity.
Sr. Member
Mar 6, 2010
670 posts
242 upvotes
Brampton
jflex wrote: Journal your Algonquin shares to the USD side of the account, and you will receive your dividends in the proper USD amount without any conversion (at TDDI's dodgy rates).

I do this for all my Canadian stocks that pay their dividends in USD (Brookfield, Magna etc).
Can you please explain what does this "cost"? Journal or exchange fee?
[OP]
Deal Addict
Feb 26, 2017
2455 posts
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luking wrote: Can you please explain what does this "cost"? Journal or exchange fee?
Its free with TDDI and probably most other brokers.
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User avatar
Jul 5, 2008
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jflex wrote: Journal your Algonquin shares to the USD side of the account, and you will receive your dividends in the proper USD amount without any conversion (at TDDI's dodgy rates).

I do this for all my Canadian stocks that pay their dividends in USD (Brookfield, Magna etc).
I've only held AQN in an SDRSP so I don't know if they tax the divi's in a Cdn$ acct. Are you holding it in a TFSA or RRSP or neither?

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