Algonquin announced that the sale of its renewable energy business is expected to be finalized by late 2024 or early 2025.
Shares of Algonquin Power & Utilities (AQN) experienced a significant drop on Friday after the company announced a 40% reduction in its dividend. The Oakville, Ontario-based company also revealed plans to sell its renewable energy division for up to $2.5 billion, marking a strategic shift towards focusing solely on its core utility business.
The quarterly dividend was slashed from $0.1085 to $0.065 per share, following a similar 40% cut in early 2023. Algonquin's dividends have traditionally been higher than its competitors, a fact that has drawn criticism from both investors and analysts concerned about the company’s mounting debt.
The sharp decline in the dividend caused Toronto-listed shares to plummet, closing at $7.42—a loss of 12.6%—marking their lowest point since November. This dramatic drop came after a note from RBC Capital Markets analyst Nelson Ng, who had anticipated a 30% cut in the dividend. Ng highlighted that a reduced dividend payout was necessary to improve the company's financial standing and investment appeal.
Ng had previously warned that as Algonquin transitions to a pure-play utility company, it must avoid starting on the wrong foot, particularly with investors scrutinizing the sustainability of its dividends and the funding of its capital expenditures. He emphasized that the company now has a rare chance to reshape its balance sheet and capital allocation strategy in a way that could attract new investors.
The company also reported its financial results for the second quarter on Friday. It showed a significant turnaround, posting a profit of $200.8 million, compared to a loss of $253.2 million in the same period last year. However, revenue for the quarter fell by 5% year-over-year to $598.6 million. Algonquin's long-term debt stood at $8.3 billion by the end of the quarter.
The sale of the renewable energy division comes nearly a year after Christopher Huskilson took over as interim CEO, replacing Arun Banskota. Huskilson's leadership change occurred amid growing criticism from activist investors who were unhappy with the company's declining stock price and increasing debt, which were exacerbated by a series of acquisitions.
On Friday, Algonquin finalized a long-awaited agreement to sell its renewable energy assets to New York-based LS Power for up to $2.5 billion, excluding debt. The transaction is expected to be completed either in the fourth quarter of 2024 or the first quarter of 2025. According to the company, the proceeds from this sale will primarily be used to strengthen its balance sheet.
Huskilson expressed optimism about the company's direction during a conference call with analysts, stating that the proceeds from the sale and the valuation of the assets were highly favourable. He reaffirmed his belief that the company’s ongoing transition towards becoming a pure-play regulated utility aligns with its goal of creating long-term value.
Algonquin's renewable energy portfolio includes 46 solar, wind, hydro, renewable gas, and thermal facilities spread across 11 U.S. states and six Canadian provinces, with three-quarters of these assets located in the United States.
