Investment Q&A

Q: what is your opinion of AQN going forward long-term now that they have cut their dividend?

Q: I don't understand. A recent 5i answer on AQN stated:
"On an operating cash flow basis, the dividend was still coverered in the 12 months to Sept 30."
As I look at the Balance & Income Sheets as of Q3:
Working capital is $-579,890,000
Net income for the 3 quarters this year is $-182,000,000.

AQN will payout $0.92 per share in dividends for the year. They've already committed to $0.22 for Q4
676 million shares x $0.92 = $616,400,000 payable in dividends for the 2022 year ($154,000,000 to be paid in Q4)

Somehow, somewhere isn't it true that the dividend payments must be impacting that negative working capital, the negative net income, the increasing debt amount and increasing interest to service the debt? In essence, aren't the dividends coming from borrowing, whether directly or indirectly?

Thanks, always appreciate 5i's perspective.

Q: hi folks:

what am i missing here?

time and again, when a dividend company comes under pressure (in this case AQN) all the wags talk about 'soaring and unsustainable dividends'

this clip from today:

Yes – Algonquin’s juicy dividend. The drop in share price has caused Algonquin’s dividend to soar. As of the time of writing, the stock is down over 50% year to date, while the dividend yield has swelled to 10.93%.

That’s an insane, if not unsustainable, dividend yield. Even if Algonquin were to slash its dividend in half, it would still offer a very competitive yield, and still one of the better-paying options on the market.


the dividend $ has NOT changed; only the yield as a % of share price has

either the company can support the dividend or it cannot

my point: a dividend is a reflection of the strength of the balance sheet and the companies cashflow

that the price gets knocked in half is irrelevant to the dividend paid

UNLESS said bal/sht and cashflow will no longer support the divy at that amount

(yes, i understand that the current price reflects people's belief that the balance sheet cannot continue this level of dividend)

so, are these type clips just sensationalizing or am i completely wrong?

again.........

thx

happy new year team

Q: hi. I am still holding AQN. it represents about 3% of my portfolio now. I am considering selling. can you provide me 5 names of dividend companies ( dividends 3.5% or higher please) that you feel will have decent growth ( hopefully gaining back the capital loss from AQN's slide). they do not have to be sector specific, just your highest conviction names, regardless of sector.
cheers, Chris

Q: Hello Peter

Best wishes for the Season

I owne the above in my non taxable accounts with a considerable loss. I am a senior who tended to invest in growth stocks with some sucess exept in the last 12 months.
I consider that above list has some potential for recovery.
I would like to concentrate on the bests with the greatest potential recovery in 2023.
I will appreciate your advice on the stocks I could sell or add on or replace.
I always value your opinion
Raouf

Q: Hi Peter, Ryan, and 5i Team,

Sorry for yet another Brookfield question! In my RRIF, I hold these three Brookfield entities: BEP.UN, BN, and BAM.

As a retired investor who likes dividends, and is underweight in utilities (due to recently selling AQN) and is overweight in financials, would you endorse selling BN and BAM, and using the proceeds to buy more BEP.UN? Or is there a flaw in my thinking?

Thanks as always for your timely advice, and happy holidays to everyone at 5i.

Q: At what price could this stock could represent a reasonable" Buy" ?

Q: Hi 5i
I think Peter has been around long enough to remember December 1999 when TRP cut its dividend from 1.20 to .80 and the stock tanked to under $10. More recently ALA made a deal to buy WGL and issued shares at $31 ( I think Caisse depot or other big guys were in for $400 million). ALA went down to around $11 and recoverd to over $28 recently. So my question is: do you see any similarities to TRP or ALA turnarounds to think that AQN ($9.50) could follow a similar chart?
Thanks, Greg

Q: The US authorities disapproved the Kentucky deal. Wasn’t it a good thing for the company stock given that the market hadn’t liked it in the first place? However, the stock is down today. Can you explain the reaction?

Thanks,

Q: This is my selection of stocks for steady revenue (and secondarily potential growth) .Since a serious economic crisis is not excluded in my opinion ,I now plan to : 1) only keep Cies at low risk to become out of business and that should maintain dividends, based on their history and financial strength , and to : 2) sell the other stocks to buy ETF instead..

Wich stocks can be "relatively safely" kept at long term for this purpose ?

Q: In Investment (non-registered) accounts these 5 stocks are all 'under-water'. I am considering selling for 'tax loss' purposes and would appreciate your thoughts. Is this a useful approach? Are there any that merit re-purchase following 30 days 'waiting period'?

Q: Hi Peter, Ryan, and 5i Team,

More comments, a question, and a link regarding Algonquin and some historical relevance!

AQN was held in my wife's RRIF and daughter-in-law's RRSP. My feeling is that AQN will be in the 'penalty box' for quite some time, and the share price will settle around $10.00 or less. Since they're both conservative investors, I switched them to Fortis FTS, which they already held in their respective accounts. It was an easy decision. Do you agree with the thinking here?

AQN was also held in our son's TFSA, but he needed the funds recently for a house purchase. I was fortunate to sell it at around $16.00.

I didn't act soon enough with the two other accounts holding AQN for several reasons. Living in Oakville, where AQN's headquarters is located, resulted in "home town bias" - a mistake in retrospect, because I never felt comfortable with its acquisition of Kentucky Power. It was too expensive, and too much debt was taken on by Algonquin.

Finally, here's a link from 'Seeking Alpha' which outlines the fate that AQN may face when compared to a similar ill-fated and debt-ridden mistake made by AltaGas when they bought WGN. It's taken them a long time to correct their mistake, and I suspect that AQN's mistake will have similar consequences.

https://seekingalpha.com/article/4563884-altagas-vs-algonquin-discounted-utilities-with-ominous-similarities?mailingid=29958270&messageid=must_reads&serial=29958270.150190&utm_campaign=Must%2BReads%2BDecember%2B12%2C%2B2022&utm_content=seeking_alpha&utm_medium=email&utm_source=seeking_alpha&utm_term=must_reads

Thanks for your continued guidance!

Q: Hi 5i,

Further to Dennis's question on the 21%, the comments may pertain to how much of AQN's debt is floating and not the rate they are paying.

Just a thought!

Q: These are my holding inside my TFSA. I am 25 years old and would like to know your opinion on this Portfolio and if you think these are good longterm holdings or if they could be replaced with a better investment (please indicate what company you would replace with). Also witch companies would you consider a Buy in 2023 from these holdings for my 6,500$ contribution room.

Thanks

Q: Just a follow up to Dennis's question regarding yield on AQN. Is it possible that the current yield on some of it has reached the level he mentions based on the market price of the debt instrument? If so would that indicate that the debt market expects trouble here?

Thanks

Q: AQN's dividend is now 10%. There is a lot of talk that AQN will cut its dividend to be in-line with its peers. That would be around a 50% dividend cut. [In the past you have said many times that the first dividend cut is never the last.]

I have seen it mentioned here and elsewhere that during the financial crisis Manulife Financial cut its dividend, and it appears investors from that time have never forgotten that, or forgiven them for it. By the way what was the dividend cut they made? Was it only 1 cut, or was it several cuts?

Do you think that if AQN cuts its dividend, the stock will languish for a very long time as investors (like me) will not forget, and will never forgive?

Has AQN ever cut its dividend before? If yes, what were the cuts and when?

Are there other high profile examples of dividend cuts (excluding energy stocks in 2020) where the company has been penalized for doing that for a very long time?

Q: Hi Peter and Staff

I know you cannot believe everything you read or hear. I hear a commentator say last week that the company had floating debt that had risen to 21%. Is this true? I know rates have gone up by some 4% by that would still mean they were paying rather ridiculous floating rates for a public company?

IF not true perhaps you could shed some light on what they are inflicted with as far as floating rate debt and terms?

Thanks for all you do
Dennis

Q: I am planning to sell these stocks for tax loss purposes. Can you suggest a proxy for each? I was thinking FTS for AQN, and possibly not buy it back, and perhaps not buying back OTEX either. Others planning to buy back after the 30 days. Your thoughts on whether or not buying back OTEX and AQN a good idea also appreciated.

thanks,

Q: Looking to sell either SYZ or AQN for a tax loss (will still retain SYZ and AQN in registered accounts). SYZ in an unknown, so I am thinking it may be the better one to get sell. AQN will still pay some kind of dividend and is more likely to improve with time. Would appreciate your comments.

Q: Dear 5i,
Thanks for being such a wealth of objective information and happy holidays!
There has been recent insider buying at AQN at the much lower price. Can you please provide your opinion on whether the executives have "real" skin in the game. Some of them seem to have significant options available but do these give insiders a lot of incentive? If the company announced a 50% dividend cut do you think the stock price would go up or down?