Retirement Income: A Top Dividend Stock With More Room to Grow

Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) is well on course to beat other top utility stocks this year. Is the time right to include this top dividend stock in your retirement income portfolio?

| More on:

Companies that provide electricity, gas, and water are the top dividend stocks I recommend to generate income for your retirement.

Utility stocks are like bonds. There is very little uncertainty about their returns for investors. They invest heavily to make sure customers get basic services without any interruption. In return, customers pay their monthly bills, and governments offer inflation-linked contracted returns for their services.

This business model is very attractive for retirees who hate uncertainty when it comes meeting their financial needs during their golden age. Utility stocks, through their stable and regular dividends, provide stability to income portfolios. That’s the reason top investment advisors recommend having at least a couple of utility stocks in income portfolios.

Ontario-based Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN) is among the top North American utility stocks. Let’s find out why.

Algonquin’s business

Algonquin is a diversified generation, transmission, and distribution utility with US$10 billion of total assets. Through its two business groups, the company provides rate regulated natural gas, water, and electricity services to over 700,000 customers in the U.S.

Algonquin also has a clean energy unit, running a portfolio of long-term contracted wind, solar, and hydroelectric generating facilities, managing more than 1,250 MW of installed capacity.

It generates about 70% of earnings from regulated utilities and 30% from contracted renewable power. Over the past few years, Algonquin has grown through a very smart acquisition strategy, in which it’s bought some high-quality assets from larger U.S. utilities through its wholly owned subsidiary, Liberty Utilities.

Share performance

Over the past five years, Algonquin’s share price has doubled, trading at $13.46 at the time of writing. This stellar performance shows the success of the company’s growth strategy and its ability to generate superior returns when compared to other Canadian utilities.

Algonquin shares were under pressure, hurt by rising interest rates and a stronger Canadian dollar. A higher value of the Canadian dollar hurts the company because Algonquin declares its dividends in U.S. dollars, which means less income for those who need to convert their income back into the local currency. But despite these challenges, Algonquin is still up 18% this year, outperforming other top utility stocks.

The bottom line

With an annual dividend yield of 4.3%, which translates into a $0.1165-a-share payout, Algonquin stock seems very attractive and provides a good diversification opportunity to your retirement income due to the company’s push in the selective and underserved U.S. markets.

The company plans to increase its dividend payout by 10% each year for the next five years, as it undertakes its $6.3 billion capital-deployment plan. Though its stock is trading close to the 52-week high of $13.48, I still see a good upside potential for long-term investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar has no position in the companies mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

Middle aged man drinks coffee
Dividend Stocks

Here’s the Average TFSA Balance at Age 35 in Canada

At age 35, it might not seem like you need to be thinking about your future cash flow. But ideally,…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Invest Your $7,000 TFSA Contribution in 2024

Here's how I would prioritize a $7,000 TFSA contribution for growth and income.

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

Technology
Dividend Stocks

TFSA Investors: 3 Dividend Stocks I’d Buy and Hold Forever

These TSX dividend stocks are likely to help TFSA investors earn steady and growing passive income for decades.

Read more »

four people hold happy emoji masks
Dividend Stocks

Love Dividend Growth? Check Out These 2 Income-Boosting Stocks

National Bank of Canada (TSX:NA) and another Canadian dividend-growth stock are looking like a bargain going into December 2024.

Read more »

An investor uses a tablet
Dividend Stocks

A Dividend Giant I’d Buy Over Enbridge Stock Right Now

Enbridge stock may seem like the best of the best in terms of dividends, but honestly this one is far…

Read more »