Friday, October 21, 2016
Clean Green Dividends
The recent pullback in stock prices in the U.S. equity market has opened the door to some interesting dividend yields. Investors with a taste for environmentally-friendly businesses have some particularly interesting alternatives that can pump up the purse as well as protect Mother Earth.
AES Corporation (AES: NYSE) is a world-class power generator from mixed portfolio of conventional and renewable power sources. About 28% of its 29,352 megawatts of generation capacity is from renewable fuel sources, including hydro, biomass, solar and wind, and another 33% from plants using natural gas. The balance of AES’s power still comes from fossil fuel, including a good amount from coal-fired plants. Indeed, AES just recently commissioned a new 1,240 megawatt coal-fired power plant in Vietnam.
In the twelve months ending June 2016, AES also generated $2.9 billion in operating cash flow on $14.1 billion in total revenue. Cash flow helps cover the interest burden from $20.8 billion in debt as well as dividend commitments. The current dividend rate is $0.44 per share, providing a dividend yield of 3.8% at the current price level.
Among other real estate investments, Brookfield Asset Management (BAM: NYSE) holds interests in hydroelectric power plants and transmission facilities in the northeastern part of the U.S. As an asset management company Brookfield provides investors with consistent income stream without the technology risks of most renewable energy stocks. Brookfield owns 200 hydroelectric power generation facilities in North and South America, 35 wind power projects on three continents, and four biomass plants in Brazil. Additionally, Brookfield has invested in a 600-megawatt pumped storage facility in Massachusetts. The Brookfield portfolio also includes gas and electric utility services with over 2.6 million connected customers. The company generated $2.8 billion in operating cash flow on $23.4 billion in total sales in the twelve months ending June 2016.
Brookfield shares are trading at 32.8 times the consensus estimate for 2017. That might seem pricey in comparison to the utility industry that is trading closer to 18 times forward earnings. However, Brookfield is also generating double digit growth. Shareholders are also getting 1.5% dividend yield at the current price level.
For those investors who are not bothered by expensive valuation metrics, Covanta Holding Corporation (CVA: NYSE) is trading at 185 times projected earnings. Operating 25 waste-to-energy and materials processing facilities across the country, Covanta represents the twenty-first century sustainable enterprise. Although its metals recovery business has struggled against low selling prices, Covanta’s position in the waste handling industry remains solid. The company earned $45 million in net income on $1.7 billion in total sales in the twelve months ending June 2016. Covanta shares offer a 6.6% forward dividend yield at the current price level.
A better bargain can be found in ethanol fuel producer Green Plains, Inc. (GPRE: Nasdaq), which trades at 15.6 times forward earnings. Unfortunately, the company’s financial profile is much less appealing. In the twelve months ending June 2016, the company incurred a net loss of $13.4 million on $3.1 billion in revenue from ethanol and corn by-products. The half dozen analysts who cover the company apparently believe the bad times are only temporary and have projected $1.72 in adjusted earnings per share on $4.0 billion in sales in fiscal year 2017.
Green Plains is the third largest ethanol producer in the world, operating seventeen plants in the U.S. that have the capacity to produce 1.5 billion gallons of ethanol per year. A meaningful stake in ethanol production in the world requires a position in Green Plains.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.