I recently consolidated my high-yield dividend growth retirement portfolio into my top 27 highest conviction ideas. Those that offered the best combination of:

• High (but safe) yield
• Fast long-term payout growth potential
• Mouthwatering valuation (highest margin of safety)
• The best long-term total return potential (annualized target return 13%)

Algonquin Power & Utilities (AQN) was one of the few regulated utilities to make the cut. Let’s take a look at three reasons why this little known high-yield utility hyper growth story is one that you might want to consider for your own high-yield income growth portfolio as well. Specifically, learn why this dividend growth dynamo is likely to not just provide: generous, safe, and fast income growth, but also potentially more than quadruple your money over the coming decade.

Algonquin Power & Utilities: A Fast Growing Utility You’ve Likely Never Heard Of

Source: Algonquin Investor Presentation

Algonquin is a small Canadian based utility that actually derives 93% of its cash flow from the US. That’s because  68% of its business is serving 763,000 regulated gas, water, and electricity customers in 13 US states. 25% of its cash flow is from its fast growing Liberty Power subsidiary which owns full or partial stakes in 2.3 GW of renewable energy assets. Algonquin the sponsor of Atlantica Yield (AY) a fast growing yieldco (renewable energy utility) that has operations all over the world. It currently owns 25% of Atlantica and is planning on increasing that to 41.5% in the next few months. Effectively this means that Algonquin is a North America (mostly US) regulated utility but with large international growth potential thanks to its renewable power business.

Source: Algonquin Investor Presentation

The company’s cash flow is extremely stable because it’s a government sanctioned monopoly with a locked in customer base to which it provides essential services at guaranteed rates of return. The unregulated side of the business (renewable power) also has rock solid cash flow stability thanks to all of those clean energy power projects being under long-term power purchase agreements of PPAs with other utilities. New projects usually are signed with 20 to 25 year contracts and the company’s average remaining PPA is for just over 16 years.

Algonquin is one of the fastest growing (26% YOY growth in cash flow in the last quarter) regulated utilities in North America thanks to its management’s skilled use of accretive acquisitions. In the past seven years the tiny utility has made over $3 billion in acquisitions buying 27 other smaller utilities or renewable energy projects. In the slow growing utility business growth through M&A, to increase your customer base and rate base (assets on which regulated returns on equity are applied to) is normal. However, Algonquin doesn’t just rely on acquisitions for its growth. It has an impressive $6.4 billion in organic growth projects it’s planning to complete through 2022. For context the company’s entire market cap is just $4.6 billion. Due to that small size, all those projects are expected to boost its operating cash flow by 76% between 2017 and 2022. That translates into an expect EPS and adjusted funds from operation or AFFO (what pays the dividend) growth rate of over 10% per year.

Source: Algonquin Investor Presentation

Best of all, that industry leading cash flow per share growth rate means that Algonquin is likely to hit management’s goal of 10% dividend growth through 2022. And analysts actually expect that growth rate to continue through 2028. While such long-term forecasts need to be taken with a grain of salt, this growth superstar’s strong growth catalysts (including international clean energy expansion) means that I’m confident that Algonquin is going to become one of the best utilities you can own over the next decade.

But wait it gets better! Not just does Algonquin offer the fastest long-term dividend growth potential of any regulated utility, but at the same time it offers one of the best yields too. That means that Algonquin is potentially set up to generate 15% to 17% total returns over the next 10 years, crushing not just other utilities but the stock market as a whole.  

Photo: “Retirement” by 401(K) 2013 is licensed under CC BY-SA