Renewable Dividends Revisited

Beginning with the post “Renewable Dividends – Utilities” on January 8, 2021, the renewable energy industry was explored over three posts for credible dividend yield.  Three months on this post revisits the stocks and yields to see where investors might be with a one-quarter stake in dividends ‘powered’ with renewable energy.

Conventional

First up is NextEra Energy (NEE:  NYSE), the largest producer of wind and solar energy in the world.  At the prevailing price NEE offered a forward dividend yield of 1.73%.  If there had been any doubt about NextEra’s ability to sustain such attractive dividend payout, the company’s annual report in February 2021, provide strong verification of earnings power.  Operating through two subsidiaries  -  Florida Power and Light (FPL) and NextEra Energy Resources (NEER)  -  NextEra mustered $18 billion in total sales in the year 2020, which provided $2.9 billion in net income or $1.48 in earnings per share.  NextEra converted a whopping 44% of sales to operating cash flow.  The $7.98 billion operating cash flow was sufficient to cover capital investment of $6.5 billion in 2020.

In January 2020, NEE shares were trading at 31.8 times forward earnings.  In the three months that have gone by valuation has only marginally improved to 29.2 times forward earnings.  That is because the stock has traded off over the last three months, sinking into oversold territory according to a technical signal called the relative strength index.  Indeed, NEE has crumbled down below a line of price support/resistance at the $74.00 price level.

Infrastructure

For income seekers willing to go beyond the conventional utility, the series offered an idea from the energy infrastructure corner of the renewable energy sector.  Brookfield Renewable Partners, LP (BEP:  NYSE) owns a portfolio of power producing properties, including over 5,000 generating facilities on four continents that have a combined capacity of 19,400 megawatts.  Hydroelectric power is its primary strength, but Brookfield also has interests in wind and solar power.  At the time of the original post on Brookfield’s dividend, the company had just announced plans to expand it solar operating interests by 360 megawatts through the acquisition of Exelon’s (EXC:  Nasdaq) solar platform.  Another 700 megawatts are under development.  The deal valued at $810 million remains in the due diligence phase.  A nice issue to have hanging over a stock!

Unfortunately, there have been some additional clouds on the horizon.  The stock price fell off in the six weeks following our discussion of the BEP dividend, falling through a line of price support at the $40.00 level and landing in oversold territory.  Even after the price correction the stock is still trading at a breath taking 200 times forward cash earnings, but the dividend yield looks even juicier at 2.98% after Brookfield management increased the company’s quarter distribution by 5% to $0.30375 per limited partner unit.

There are collectors of renewable energy infrastructure all over the world.  Shares of Atlantica Sustainable Infrastructure Plc (AY:  NYSE)  provide investors in the U.S. a chance to tap renewable energy demand in South America and share in the profits.  Atlantica has a portfolio of over two dozen facilities representing 1,500 megawatts of renewable energy generating capacity in addition to natural gas fired plants that can kick out another 342 megawatts. 

In the full year 2020, Atlantica capture $1.1 billion in total sales, providing $12 million in net income or $0.12 per share.  The company converted an impressive 41% of its sales in 2020 to operating cash flow, confirming the view that Atlantica is an efficient operation.  The largess helps support a forward dividend rate of $1.68.  At the current price level the forward dividend yield is 5.01%, well above the 3.68% that caught our eye three months ago. 

Techno Payout

Technology stocks have done well over the last year as the world turned to gadgets, games and networks to cope with the ravages of the coronavirus pandemic.  Bio-chemical and renewable fuel developer FutureFuel Corporation (FF:  NYSE) was chosen for its transesterification technology that converts low-cost organic feedstocks into usable chemicals and fuels.  The company claimed a tidy 10.9% operating profit margin on $204.5 million in total sales in the year 2020.  In dollar terms net income was $46.5 million or $1.06 per share.  It is also notable that operating cash flow was $96.4 million in the year, providing amply support for capital investment as well as a plump dividend of $0.24 per share. 

Much like the other stocks, FF shares have trade down in the last couple of months.  With an annual report providing strong evidence of a business model that continues to thrive, the new lower price makes FF even more appealing to income hungry investors.  At the current stock price the forward dividend yield is 1.66%.

All in all the four dividend ideas appear to be holding up well to continued scrutiny.  Strong performance in the full year 2020, and some price weakness makes all four look even better in the Spring 2021 as they did in the middle of Winter 2020-21.

 

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.