Algonquin Power cuts dividend by 40 per cent, shares slump
Algonquin Power and Utilities Corp. (AQN-T -4.62%decrease) slashed its quarterly dividend by about 40 per cent amid what the company called challenging headwinds related to rising borrowing costs and a determination to maintain its investment grade credit rating.
The share price of the Canadian-based water utility and renewable power producer fell 3.6 per cent, or 36 cents, to $9.60 in Toronto in early trading on Thursday.
The dividend reduction, which follows disappointing financial results in November and a soaring dividend yield above 10 per cent as the share price slumped, means that the quarterly payout will fall to US10.85 cents per share from US18.08 cents previously.
Based on Thursday’s share price in U.S. dollars (the shares also trade in New York), the yield will fall to 6.1 per cent.
Arun Banskota, Algonquin’s chief executive officer, called the action one of the decisive steps the company is taking in response to an economic backdrop that has driven up interest rates to multiyear highs as central banks confront rising inflation.
“We have reached an inflection point, and as the market continues to evolve we are facing various challenges that are putting pressure on our growth rates and making our dividend payout unsustainable,” Mr. Banskota said during a call with analysts.
“As a result, we are taking decisive actions to address these challenges and strengthen our financial position,” Mr. Banskota added.
The company expects that the lower dividend payout will save US$1-billion over five years. It also means that the payout ratio – which compares dividends paid to shareholders with profits – will decline from above 100 per cent to an estimated range between 71 per cent and 79 per cent, according to estimates from Bank of Nova Scotia.
Algonquin said it is committed to completing the acquisition of Kentucky Power, which the U.S. Federal Energy Regulatory Commission blocked last month.
It said it will reduce its capital expenditures by about 15 per cent and target about US$1-billion in asset sales. Also, it will end new common equity issuance for the next two years and suspend its dividend reinvestment plan, to put a brake on shareholder dilution.
“Generally speaking, we see the steps the company is taking as prudent and should help reduce uncertainty surrounding the shares, though we have questions regarding the earnings outlook,” Robert Hope, an analyst at Bank of Nova Scotia, said in a note.
Algonquin expects it can generate net earnings of US55 cents to US61 cents per share for the 2023 fiscal year, excluding the potential impact of asset sales, down from an estimated US68 cents per share in fiscal 2022.