Get Paid 7.5% From This Forgotten Utility: Algonquin Power

Core Viewpoint - The article discusses the challenges faced by Algonquin Power & Utilities Corp. (AQN) due to a failed acquisition and the subsequent actions of activist investor Starboard Value LP, which has acquired a significant stake in the company and proposed a plan to enhance shareholder value through divestitures and debt reduction [2][3][4]. Group 1: Company Challenges - AQN's attempt to acquire Kentucky power assets from American Electric Power (AEP) failed, leading to high debt levels and a dividend cut, which negatively impacted investor confidence [2][4][7]. - The company's valuation has been hindered by excessive leverage, a high dividend payout ratio, and a significant proportion of unregulated assets, making it "uninvestable" for many traditional utility investors [4][7]. Group 2: Activist Investor's Plan - Starboard Value LP has purchased 58.4 million shares of AQN, representing just under 8.5% of the company, and believes AQN's regulated services group is undervalued compared to peers [3][4]. - Starboard proposes selling off AQN's unregulated renewables business to reduce leverage below 5.0x debt/EBITDA and to buy back equity, aiming for a more secure dividend and potential growth [4][5]. - The activist investor highlights AQN's water utility as a "hidden gem" that could allow the company to trade at a premium to peers, suggesting that divesting the renewables business could unlock significant shareholder value [4][5]. Group 3: Current Outlook - AQN is viewed positively due to its high yield of 7.3%, which is the highest among regulated utilities, and the expectation of sustainable dividends with growth potential beyond 2026 [5][10]. - The utility sector is considered attractive as interest rates may decline, making AQN's current valuation an appealing entry point for investors [5][10]. - AQN's share price is currently trading at a significant discount compared to its historical performance and peer valuations, primarily due to the fallout from the failed Kentucky Power deal [5][10].