Right here’s the underside line up entrance: no, Algonquin Energy & Utilities Corp. (TSX:AQN) just isn’t an excellent dividend inventory to purchase in case your objective is creating wealth out of your investments.

The corporate remains to be battling unfavorable leveraged free money stream, a dangerously excessive debt-to-equity ratio, and an unsustainable payout when measured in opposition to distributable money stream. On prime of that, administration has repeatedly diluted shareholders, treating them as a lifeline moderately than companions.

In case your purpose for taking a look at AQN is to safe excessive dividend yields from utilities, there are higher decisions. One exchange-traded fund (ETF) that holds a basket of main utilities and pays a pretty month-to-month yield is the Hamilton Enhanced Utilities ETF (TSX:HUTS). Right here’s why I prefer it.

How HUTS works

HUTS tracks the Solactive Canadian Utility Providers Excessive Dividend Index, however this index takes a broader, extra forward-looking view of “utilities” than conventional benchmarks.

As an alternative of limiting itself to regulated energy and gasoline firms, it additionally contains pipelines – technically categorized underneath vitality – and telecom firms, which fall underneath communications.

That issues as a result of pipelines behave very similar to utilities, with regulated, tollbooth-style money flows. Telecom firms additionally match the profile, providing important companies with recurring revenues and powerful dividend histories.

By mixing utilities, pipelines, and telecoms, the index captures a wider set of important service suppliers, making a extra diversified and resilient portfolio than the standard S&P/TSX Capped Utilities Index, which is narrower and extra uncovered to energy and gasoline.

HUTS leveraged defined

HUTS employs modest leverage of 1.25 instances. For each $100 invested, the fund borrows one other $25 at institutional charges. That leverage lets you personal extra of the underlying shares with out managing margin your self, and in contrast to borrowing immediately, it may be held inside registered accounts like a TFSA or RRSP.

The impact is magnified publicity – each on the upside and draw back – but additionally increased yield. Proper now, HUTS pays a 6.3% distribution yield with month-to-month payouts.

Furthermore, the Solactive Index it tracks has traditionally outperformed the better-known S&P/TSX Capped Utilities Index in each yield and uncooked efficiency after factoring within the 1.25 instances leverage.

The Silly takeaway

Don’t pin your dividend earnings on a single, closely indebted, and poorly managed utility. An ETF like HUTS spreads danger throughout the sector and makes use of modest leverage to spice up earnings, providing you with month-to-month yield with out the luggage of firms like Algonquin.