TD commentEvent Algonquin Power & Utilities released a corporate update this morning ahead of a call with investors.
AQN and AEP are committed to the Kentucky Power transaction. The parties will file a new FERC application in the near-term.
40% dividend cut. The annual dividend (paid quarterly) has been cut to $0.434/ shr as of April (previously $0.7232/share). We anticipated a 50% reduction based on a more conservative payout ratio policy.
Conference Call: Today at 8:00 a.m. ET: 1-800-806-5484 or 416-641-6104, ID 3616196 (link to webcast, slides) .
Impact: SLIGHTLY NEGATIVE
While the dividend reduction helps to right-size the payout ratio, many elements of the company's plans have not been detailed. The company did not provide longer-term EPS growth targets (previously 7%-9% five-year EPS CAGR), or context regarding its longer-term capital and funding plans. We believe the Kentucky Power acquisition remains unpopular with many investors; the company remains committed to the pursuit of this transaction. Details
AQN provided 2023 adjusted EPS guidance of $0.55-$0.61. The $0.58/share midpoint compares with our recently published estimate of $0.59/share and consensus of $0.68/share.
The 40% dividend cut equates to a 75% payout ratio at the midpoint of 2023 EPS guidance (5.9% yield at current share price). Management expects to grow the dividend in general alignment with adjusted EPS. The DRIP is suspended as of the Q1/23 dividend (21% of common shares registered at 09/30/2022).
$1 billion of additional asset sales planned. AQN expects to use the proceeds from the next phase of renewable asset recycling and other asset sales for debt repayment and funding growth (at reduced capital spending intensity). The company reiterated its commitment to a BBB credit rating, and does not expect new common equity financings through the end of 2024.
Kentucky Power FERC Refiling. AEP and Liberty Utilities are committed to the sale and plan to pursue expedited approval of the transaction, which was denied without prejudice by FERC in December (we assume a Q3/23 closing). The transaction agreement appears to contemplate termination only due to a lack of regulatory approval once all denials are final and non-appealable.