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Why you should keep an eye on Algonquin Power

Algonquin Power & Utilities Corp.’s hydro facility near Rivière-du-Loup.

Algonquin Power/Andre Kedl

Hi Lou: Kindly take a look at Algonquin Power & Utilities. Something seems out of alignment here, the 4.9+ yield looks too good to be true, though an analyst at RBC rated it "sector outperform" in a recent analysis. Your thought please and thanks, Bola

Thanks for the assignment. Algonquin Power & Utilities Corp. has been selling off since May as a result of uncertainty as to the direction of monetary policy from the U.S. Federal Reserve. The threat is that the Fed will begin tapering off their purchases of $85-billion a month of U.S. Treasuries and mortgage-backed securities. The easing of monetary policy by the central bank is intended to meet its policy objective of reducing unemployment in the United States to 6.5 per cent. The mere mention of a change in policy has rippled through the bond markets sending yields higher and driving investors out of dividend paying stocks.

With regards to a rating issued by an analyst, it should be a place to begin your due diligence. I like reading the reports issued by analysts who cover a stock because it gives me a greater depth of knowledge about the company and different points of view. A run at the charts will help identify how best to proceed with AQN.

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The three-year chart tells the tale of a stock that has broken below its uptrend line and breeched support along the 50- and 200-day moving average. In addition, a double top surfaced in May, which signals a trend reversal. Finally a death cross appears to be forming putting another caution flag on the track. With the retreat from the May highs, the dividend yield is now 5.015 per cent, which should encourage you to put Algonquin on your watch list for an entry point. The next level of support for the stock comes in at $6.50.

The six-month chart is not producing a buy signal at this point. The RSI and the MACD are neutral at best suggesting that it would be best to wait for a more positive indication as to direction. Currently the trend is down, support has been breached, a death cross is forming, and the momentum indicators are neutral. Keep you powder dry and look for a bounce off of $6.50 if that fails to hold the next level of support comes in at $6.

Make it a profitable day and happy capitalism!

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About the Author
Lou Schizas

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality - and a true believer in the happiness-inspiring powers of capitalism. More

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