With the impact of fossil fuel extraction and use on climate change, renewable energy sources are becoming more attractive, says Enriched Investing’s Margaret Samuel.
There are a number of sectors in renewable energy, the most significant of which are solar, wind, hydroelectric, geothermal, biomass, photovoltaics and fuel cells. In addition, many of the largest public companies involved in the development of the renewable energy industry also participate in other industries.
Moreover, the increasing demand for stocks that supply and support renewable energy production has created overvaluation and mania as investors become willing to pay for future growth. So, with this complexity in the industry, along with increasing valuations, investors need to be selective.
History has shown that stocks paying dividends, particularly dividends that have been rising, tend to perform relatively well with comparatively lower volatility. Here are two renewable energy stocks with global operations that trade on North American exchanges, pay dividends, and would help diversify a portfolio.
Northland Power Inc. (TSX—NPI)
Northland Power Inc. is an independent power producer that focuses on operating, owning, building and developing facilities which produce electricity from renewable resources such as solar, wind and clean-burning natural gas.
NPI demonstrates resilience of its business with strong management and growth opportunities in Europe, Asia, Canada, the US and Latin America. Its wind farms are in Asia, Europe, Canada and the US. Solar gas facilities are in Canada and the US and thermal-power operations are also in Canada. NPI operates a total of 2,681 megawatts of assets globally and 1,174-megawatt production is under construction and advanced development. In Latin America, NPI has established development platforms in Mexico and Columbia.
The company’s underlying portfolio generates healthy cash-flow and margins, optimized by leveraging in-house knowledge to support development and construction. NPI has a 60 per cent stake in the Gemini North Sea wind project in the Netherlands, one of the largest offshore wind farms in the North Sea and one of the largest in the world. Even though wholesale market prices at Gemini declined in the first quarter of 2020, overall sales of the company increased 43 per cent compared to the same quarter of 2019. It is getting pricey, but 35 per cent earnings growth is projected for 2020 and 60 per cent growth out to and beyond 2026 compared to a 2018 base.
Vestas Wind Systems (OTCMKTS: VWDRY)
Vestas Wind Systems A/S (also available as an American Depository Receipt with the ticker VWDRY.PK) is a Denmark-based company active within the wind power industry. Vestas has installed more than 117 GW of wind turbines in 81 countries, more than anyone else, and in 2019 was the global leading wind turbine manufacturer by market share. It operates manufacturing plants in Denmark, Germany, Taiwan, India, Italy, Romania, the United Kingdom, Turkey, Spain, Sweden, Norway, Australia, China, Brazil, Mexico and the United States, and employs more than 25,000 people globally. It conducted about 18 per cent of global onshore wind installations in 2019.
The company operates through two segments: Power Solutions and Service. The Power Solutions segment is responsible for the sale of wind power plants and wind turbines. The Service segment enters service contracts for its products, sells spare parts and conducts other related activities such as data-driven consultancy services, fleet optimization, blade maintenance and inspection, power generator repairs and gearbox exchange. Vestas Wind System’s product line comprises 2 Megawatt (MW) and 3MW energy-capture platforms equipped with ice, smoke and shadow detection systems.
With a differentiated product portfolio and tight control on operating costs, Vestas has relatively high gross and pre-tax margins. Compared to selected peers, Vestas has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future. Despite having suspended its revenue and earnings guidance due to the COVID-19 situation, Vesta’s backlog of wind turbine and service orders was more than 34 billion Euros in the first quarter of 2020, an increase of 20 per cent compared to the same quarter in 2019. It has no net debt and pays a conservative dividend.
While the COVID-19 crisis has impacted Vestas somewhat negatively with country lockdowns reducing mobility for service technicians, construction workers and goods, Vestas projects that the increasing demand for green energy is likely to jump-start the economy post COVID-19.
Margaret Samuel can be contacted at firstname.lastname@example.org. She or clients of Enriched Investing™ may hold positions in the securities mentioned. The information provided is general in nature and does not represent investment advice. It is subject to change without notice and is based on the perspectives and opinions of the writer only. It may also contain projections or other “forward-looking statements”. There is significant risk that forward-looking statements will not prove to be accurate and actual results, performance, or achievements could differ materially from any future results, performance, or achievements that may be expressed or implied by such forward-looking statements and you will not unduly rely on such forward-looking statements. Every effort has been made to compile this material from reliable sources; however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please consult an appropriate professional regarding your particular circumstances.
This is an edited version of an article that was originally published for subscribers in the November 2020/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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