Algonquin Power & Utilities Corp. announced a $900-million offering of new shares this week, adding another reason to invest in this Canadian renewable energy heavyweight: Rallies tend to follow Algonquin’s share offerings.
That’s not an easy statement to make given the uncertainties in today’s stock market.
Algonquin’s share price, though off its lockdown-low of $13.93 on March 23, continues to struggle. The price is down 24 per cent from its record high in early March and has stumbled about 15 per cent over the past month, including a 2.6-per-cent decline on Thursday.
Algonquin – which operates in Canada and the United States as an electricity, natural gas and water utility and owns wind, solar and hydroelectric generating facilities – is not alone here.
Many non-technology stocks have retreated as the number of COVID-19 infections in the United States has soared in recent weeks, dashing hopes for a quick economic recovery.
Canadian bank stocks have fallen nearly 9 per cent over the past month. Even the Canadian utilities sector, which is relatively immune to economic downturns, is down about 16 per cent since February and has been meandering sideways over the past four months.
Nonetheless, Algonquin’s announcement on Wednesday that it is issuing new shares – more than 32.2 million at $17.10 per share in a bought-deal offering and nearly 20.5 million, also at $17.10 each, in a separate offering to an unnamed institutional investor – looks like an upbeat signal for investors.
The reason: While some companies issue shares to buttress their balance sheets during tough times, Algonquin tends to issue new shares to fuel growth opportunities. The latest issue is no exception.
“This offering satisfies the common equity requirements for the current 2020 capital expenditure program and also puts the company in a position of strength as it looks to soon begin executing on the 2021 portion of its capital program,” Algonquin president Arun Banskota said in a statement.
In December, Algonquin said it would invest US$9.2-billion over the next five years, including US$2.5-billion in renewable energy, with a development pipeline of more than 1.4 gigawatts.
This sort of promise of growth tended to drive the company’s share price higher after other recent share issues.
Consider the company’s track record, which we outlined here in October after Algonquin issued 23 million shares at US$13.50 each (the shares trade in Toronto and New York). After the deal, the shares rallied 24 per cent over the next four months.
The company issued 37.5 million shares at $11.85 in April, 2018. Six months later, the shares had delivered a total return of 10.3 per cent, including dividends.
Algonquin issued 43.5 million shares in November, 2017, at $13.25 a share. Although the shares slipped about 3 per cent after six months, they outperformed the utilities sector by nearly five percentage points. And within a year, the total return was 7.3 per cent, beating the S&P/TSX Composite Index by more than nine percentage points.
Algonquin issued 14.34 million shares in December, 2015, at $10.45 apiece. Six months later, the shares had returned 15.4 per cent, outperforming the TSX and utilities.
The latest offering, then, marks the fifth since 2015. Over this time, the share price has risen 68 per cent. And this 4½-year return doesn’t include the stock’s attractive dividend, which is currently yielding 4.8 per cent.
Algonquin’s stock is down, but the latest share issuance underscores that the company’s growth prospects are very much alive.