Activist investor Starboard Value has argued that Algonquin Power & Utilities would unlock significant value by divesting its renewable assets through a ‘‘skillfully’’ executed process.

In a letter Thursday, Starboard said that Algonquin is a ‘‘top tier’’ utilities company, undervalued by markets due to its ‘‘excessive’’ leverage and a high dividend payout ratio. The activist fund is a major shareholder with a 5% stake and a total economic exposure of 7.5%, including swaps.

In January, Algonquin slashed its dividend by 40% and revealed plans to sell assets worth $1 billion in an effort to put its finances on a more solid footing, after a series of acquisitions in recent years left it with a debt load of $7.5 billion.

Starboard wants Algonquin to be aggressive in its divestments, urging for a sale of all or a majority of the group’s renewable energy business. ‘‘Pro forma for such a sale, we believe Algonquin would have lower leverage, a safer dividend, a greener asset base and higher rate base growth than peers, and should be afforded a higher valuation,’’ wrote Starboard Managing Member Jeff Smith.

The sale process should include Algonquin’s 42% stake in Atlantica Sustainable Infrastructure, which earlier this year launched a strategic review, the investor stated. If Algonquin wants to retain some of its renewable assets, it should only keep those ‘‘that have strategic value and would allow the company to achieve even higher pro forma EPS [earnings per share], with an even greener asset base and a higher growth profile,’’ said the activist.

Starboard also encouraged Algonquin to evaluate options for its water utility business. A sale of the two units, followed by a large share repurchase could increase pro forma EPS to nearly $0.90, while still maintaining the company’s green profile, argued Smith.

Algonquin reported adjusted net earnings per share of $0.17 in the three months ended March 31, a 19% year-over-year decrease. For full-year 2022, the company’s EPS came in at $0.69.

Two months ago, Algonquin promised to assess a range of alternatives for its renewable energy arm, citing a disparity between the strength of the business and the value markets are assigning it.

Algonquin shares fell 2% Thursday to close at $8.22 each, giving the company a market value of $5.7 billion. They are still up 46% for the year.