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I've said it many times: One of the best ways to build wealth is to buy great companies when their shares are struggling.

For Algonquin Power & Utilities Corp. (AQN), now is one of those times.

Shares of the renewable-power producer and utility operator have tumbled nearly 10 per cent year to date, hurt by rising bond yields and fears about the impact of U.S. tax reform. Yet, Algonquin recently released strong fourth-quarter and full-year 2017 results, and the outlook for 2018 and beyond is favourable for the Oakville, Ont.-based company.

That's why I've decided to spend most of the "cash" in my model Yield Hog Dividend Growth Portfolio to acquire another 35 shares of Algonquin, bringing my total to 435. Here's why I remain bullish on the company.

Results continue to impress

For the fourth quarter, Algonquin's results topped analyst expectations. In its U.S. utilities segment, the company benefited from strong demand for natural gas thanks to a cold winter, while its North American power operations were helped by wind generation above the long-term average. As for tax reform, the impact will be modest: Algonquin expects a "neutral to slightly positive" effect on earnings per share in 2018, while EBITDA (eanings before interest, taxes, depreciation and amortization) will be reduced by 2 per cent to 3 per cent – better than some analysts had expected. Over the long run, Algonquin expects that the tax changes will allow its rate base – the value of assets on which a utility is permitted to earn a regulated rate of return – to grow at a faster rate than it otherwise would.

The company is growing

Algonquin's adjusted earnings per share – which excludes non-recurring items – rose 30 per cent last year, lifted by the US$2.4-billion acquisition on Jan. 1, 2017, of Empire District Electric Co., a regulated electric, gas and water utility with about 200,000 customers in Missouri, Kansas, Oklahoma and Arkansas. It was Algonquin's biggest acquisition to date and the company followed it up in November with its first deal outside North America, forming a joint venture with Spain's Abengoa SA, to develop renewable energy and water infrastructure assets globally. Concurrent with that transaction, Algonquin agreed to pay Abengoa US$608-million for a 25-per-cent stake in Atlantica Yield PLC, which operates solar and wind facilities, electrical transmission lines and desalination plants in Europe, South America and Africa. Algonquin's international expansion provides a new platform for growth, complementing continuing investments in its U.S. utility businesses and development of new wind and solar projects in North America.

The dividend is set to rise

With a five-year, $7.7-billion capital program, Algonquin is aiming to grow its adjusted EBITDA by more than 15 per cent and its dividend by 10 per cent annually over the next several years. I was slightly disappointed not to see a dividend increase along with the recent results, given that Algonquin hiked its payout in the first quarter a year ago. But management indicated on the conference call that last year's dividend increase was earlier than usual, reflecting the Empire acquisition, and that this year's increase would revert to mid-year. Given Algonquin's strong results, analysts expect a hike of about 10 per cent, which would make the current yield of 4.7 per cent even more appealing. (Note: Algonquin declares dividends in U.S. dollars and, beginning with its first-quarter results, will report in U.S. currency as well.)

Operations are diversified

One of Algonquin's strengths is its diversification. Its Liberty Power subsidiary, with assets of $3.1-billion, produces power from wind (68 per cent), thermal (22 per cent), hydro (8 per cent) and solar (2 per cent) plants in Canada and the United States. Its Liberty Utilities division, with $7.3-billion in assets, has about 760,000 natural gas, electricity and water customers across 12 U.S. states.

"In our view, AQN remains the most well-balanced investment option in the sector," Industrial Alliance Securities analyst Jeremy Rosenfield said in a note, in which he reiterated a "strong buy" rating and $17 price target. Of the 10 analysts who follow the company, there are eight buy ratings, two holds and no sells, according to Thomson Reuters. The average 12-month price target is $15.23 – a 20.2-per-cent premium to Algonquin's closing price of $12.67 on the Toronto Stock Exchange on Tuesday.

Closing thoughts

No stock is risk-free, but with its regulated utilities and long-term contracted generating facilities, Algonquin is on the conservative end of the spectrum. Rising interest rates could continue to pressure the shares in the short run, but over the long run, I expect that Algonquin's earnings and dividends will continue to grow, which in turn should provide support for the share price.

Disclosure: The author also owns AQN shares personally.

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