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Fundamentally strong companies have a robust business model, a wide moat, regular dividends, predictable revenues, and large cash flows. During volatile markets, these parameters play a crucial role in deciding what stocks to pick up so that your portfolio doesn’t swing like a yo-yo.
Boring stocks to buy now
Here are two boring stocks that are Canadian Dividend Aristocrats and meet all the criteria we just spoke about:
1. Algonquin Power & Utilities Corp (AQN)
Overview: Algonquin is a utility player with over $17 billion in total assets. It operates in two segments: Regulated Services (owns and operates a portfolio in the United States, Canada, Bermuda, and Chile, serving a total of 1.2 million customer connections) and Renewable Energy. It is one of the fastest-growing companies in the renewable space, with a portfolio of wind, solar, and hydroelectric generating facilities.
Around 82% of its contracts in this space are long-term, with an average life of 12 years. It operates or has net interests in over 4 GW of installed renewable energy capacity. The company has a business that is pretty much downturn or inflation-proof. Its consumers won’t stop using its services even if a recession hits. 70% of its business is electric, gas, and water utilities.
Financials: Algonquin reported its numbers for Q2 2022. Revenue came in at $624.3 million, an increase of 18.4% or $96.8 million, compared to Q1 2021. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for Q2 2022 came in at $289.3 million compared to $244.9 million in Q1 2021.
Its Regulated Services Group segment (electricity, natural gas, and water and wastewater systems) saw a healthy customer increase. The total number of customers increased by 140,000 year-on-year to 1.234 million. Algonquin added around 127,000 customers in New York thanks to the acquisition of Liberty NY Water. Total electric distribution systems’ usage for Q2 2022 increased 5.6% year-on-year to 1,545.1 GW-hrs compared to 1,463.2 GW-hrs for the same period in 2021.
Its Renewable Energy segment generated 2,284.7 GW-hrs of electricity for Q2 2022 compared to 1,689.1 GW-hrs during the same period in 2021, an increase of over 35%.
Future Growth: The company is acquiring Kentucky Power, adding another 230,000 consumer connections to its topline. It completed its acquisition of New York American Water earlier this year. Algonquin expects to spend between approximately $4.35 billion and $4.68 billion on capital investment opportunities.
Dividend Payout and Future Target: Algonquin is a rare stock that has delivered massive capital appreciation and solid dividend payments over the last ten years. The company’s stock price has grown at a CAGR (Compounded Annual Growth Rate) of 17.91% over the previous decade. It has increased its dividend payouts by 10% between 2010 to 2021.
Since the company is a utility player, cash flow is not a problem. It uses the cash coming in to pay a handsome dividend and expand and grow its operations.
The stock closed on August 27 at $18.47. The average analyst price target for the stock is $21.52, a potential upside of 16.5%. Add the forward dividend yield of 5.01%, and you are looking at gains of over 20%. It’s a smart deal in a volatile market.
2. Brookfield Asset Management (BAM)
Overview: Brookfield is one of the largest global asset managers in the world. Some of the world’s most significant wealth funds trust it with their monies. These include public and private pension plans, endowments and foundations, sovereign wealth funds, financial institutions, insurance companies, and private wealth investors. It owns assets across real estate, infrastructure, renewable power and transition, private equity, and credit. Its decisions can make or shock several industries. It has over $750 billion in AuM (Assets Under Management). It owns properties across the world.
Financials: On the face of it, the numbers look great. Brookfield reported its earnings for Q2 2022. It sold $21 billion in assets, realizing $5 billion in gains. Its investable cash and capital increased to over $110 billion. Nick Goodman, Chief Financial Officer of Brookfield, stated that the company deployed $20 billion into new investments. While these numbers sound good, they didn’t meet analyst expectations. EPS (Earnings Per Share) came in at $0.44 compared to a $0.72 estimate.
Future Growth: Last week, Brookfield and Intel signed a $30 billion deal to build a chip factory in Arizona. Brookfield will pay $15 billion for a 49% stake. This is a first-of-its-kind deal for the chip industry. Intel will run the factory, while both companies will split their revenue. Intel has been lagging behind peers in the chip space, and if this deal succeeds, Brookfield will reap benefits for a long time. Chipmaking executives have said that the industry had one of its best years in 2021, and they expect the industry to double by 2030 to $1 trillion.
The company closed its transition fund of $15 billion in Q2. It said it was finalizing the first closes for its sixth PE (Private Equity) flagship fund at $8 billion and its fifth infrastructure flagship fund at $20 billion. It has raised $14.5 billion for the flagship real estate fund and expects to close it by Q3. Its $16 billion opportunistic credit fund is 80% funded, and Brookfield says the “…current credit environment is leading to a number of attractive investment opportunities.”
In its Q2 2022 shareholder letter, Brookfield said, “Despite two historic Fed rate increases—with probably more to come—short rates are only at 2.5%, and long rates are less than 3%. Once this period of adjustment passes, rates are expected to settle at historically “low-ish” levels, which should still be very conducive to business.”
Dividend Payout and Future Target: Brookfield is a proven stock with a history of decades. Its shares have given a CAGR (Compounded Annual Growth Rate) of 16.66% since 2012. The stock pays out a dividend of 1.09%. It has increased its dividend payout at a CAGR of 7.82% since 2014, and there’s no reason to believe it won’t continue to do the same. The stock closed on August 27 at $64.11, and the average share target on the stock is $89.86, a potential upside of over 40%. The dividend is assured, and the substantial upside makes for a strong buy case.
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