Algonquin Power & Utilities (AQN.TO)(AQN) shares fell sharply on Friday as the company cut its dividend by 40 percent. At the same time, Algonquin announced it has reached a deal to sell its renewable energy business for up to $2.5 billion. Both moves follow the company’s plan to focus on being a pure-play utility company.
Oakville, Ontario-based Algonquin has cut its quarterly dividend from 0.1085 cents to $0.065 per common share, the same level it has remained since a previous 40 percent cut in early 2023. The company’s dividend has been historically high compared to peers, drawing criticism from activist investors and stock market analysts due to concerns about the company’s debt load.
Toronto-listed shares closed Friday at their lowest level since November at $7.42, a loss of 12.6 percent.
RBC Capital Markets analyst Nelson Ng said in a note to clients on Friday that he expects a 30 percent dividend cut. In previous research, he said a lower quarterly payout was needed to improve Algonquin’s investment profile.
“We believe the company would be off to a false start if it turns out to be a pure-play utility and investors immediately focus on dividend sustainability and the capital expenditure plan,” he wrote in July. “The company will start with a clean slate and we believe it has a rare opportunity to shape its balance sheet and capital allocation strategy in a way that attracts new investors.”
Algonquin reported its second-quarter financial results on Friday. In the same quarter last year, the company reported a loss of $253.2 million, compared to a profit of $200.8 million. Revenue fell five percent from the same period last year to $598.6 million for the three months ended June 30. The company ended the quarter with long-term debt of $8.3 billion.
The deal to sell the renewable energy business comes about a year after CEO Christopher Huskilson temporarily replaced previous CEO Arun Banskota. His appointment came as activist investors criticized the company for its falling share price and debt levels following a series of acquisitions.
On Friday, Algonquin announced a long-awaited deal to sell its renewable energy business. New York-based LS Power has agreed to buy the assets for up to $2.5 billion (excluding debt). Algonquin says the deal is expected to close in the fourth quarter of 2024 or the first quarter of 2025. The company says the proceeds will be used primarily to recapitalize its balance sheet.
“The proceeds and valuation of the transaction are compelling,” Huskilson said in a conference call with analysts on Friday morning. “I am more confident than ever that our current path to becoming a purely regulated utility supports our goal of creating long-term value.”
Algonquin’s renewable energy business includes 46 solar, wind, hydro, renewable gas and thermal facilities in 11 U.S. states and six Canadian provinces. Three-quarters of the facilities are located in the United States, according to the company.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
Download the Yahoo Finance app, available for Apple And Android.
