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  • Roger S. Conrad

International Intrigue

By Roger S. Conrad on Jul. 20, 2016

With Algonquin Power & Utilities Corp (TSX: AQN, OTC: AQUNF) trading at an equivalent of 19 quarters’ worth of dividends above our value-based buy target of US$7.50 per share, investors sitting on big gains may want to consider taking some profits off the table. Much of the stock’s recent upside reflects the ongoing risk-off trade and rotation into dividend-paying stocks with resilient cash flow.

Algonquin Power & Utilities’ proposed acquisition of Empire District Electric (NYSE: EDE) still needs approval from regulators in Arkansas and Missouri. An unexpected complication in this process could give investors an excuse to take profits.

But even if the deal falls through, the Canada-based company still has ample opportunity to grow its regulated utility’s rate base and invest in renewable energy. These capital expenditures should enable the firm to increase its dividend at an annual rate of 10 percent.

Trading at almost 27 times trailing earnings, Algonquin Power & Utilities’ stock has been bid up to levels that have outstripped its near-term growth prospects, increasing the risk of a potential pullback.

Investors who take a partial profit in Innergex Renewable Energy (TSX: INE, OTC: INGXF) will do so when the trades at an equivalent of 22 quarters’ worth of dividends above our buy target of US$7.50.

The company’s enterprise value stands at almost 20 times its operating cash flow, while the stock yields about 4 percent. Innergex Renewable Energy has grown its dividend at an annual rate of a little more than 3 percent.

The company boasts a growing portfolio of renewable-energy capacity that operates under long-term contracts and provides a high level of visibility to future cash flow. But with the stock pricing in perfection, a shift in investor sentiment away from safety-first names could take the share price down a peg. Taking some profits off the table now will free up dry powder for future opportunities.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor