Here are two renewable energy producers of clean and green electric power. Both offer attractive dividends in addition to the attractiveness of their natural gas and renewable power sources of hydro, wind, thermal and solar.
Ontario-based renewable energy producer and distributor Algonquin Power (TSX—AQN) is a “diversified generation, transmission and distribution utility with $10 billion of total assets. [Subsidiary] Liberty Utilities provides rate-regulated natural gas, water, and electricity generation, transmission, and distribution to over 783,000 customers in the United States. Algonquin is committed to being a North American leader in the generation of clean energy through its portfolio of long-term contracted wind, solar and hydroelectric generating facilities, which generate more than 1,300 MW [Megawatts] of installed capacity.”
Nova Scotia-based Emera Inc. (TSX—EMA) owns about a fifth of Algonquin Power’s shares. Emera is an energy and services company that invests in electricity generation, transmission and distribution as well as gas transmission and utility energy services.
In 2016, AQN earned a record $162 million, or 57 cents a share, excluding one-time items in both years. This was up by nearly 24 percent from adjusted earnings of $122 million, or 46 cents a share, a year earlier.
AQN is a ‘dividend aristocrat’ after raising its regular dividend for over five years. It aims to raise its dividend by 10 per cent a year.
We question the sustainability of the dividend growth. The dividend of US$0.4659 a year is C$0.62 a share. That’s an attractive dividend yield of over 4.8 per cent. But the dividend is also close to AQN’s expected 2017 profit. It may need to retain more earnings to fund its growth.
Remember, too, that Algonquin carries heavy debt. On New Year’s Eve, its net debt-to-cash-flow ratio was an aggressive 14.7 times. Its net debt-to-equity ratio was a high 2.16 to one. Exclude preferred shares of $214 million and the common shareholders’ net debt-to-equity ratio stood at 2.43 to one. Then again, Algonquin is taking steps to add to its shareholders’ equity. This will improve its ratio.
The consensus recommendation of two analysts is that Algonquin is a ‘buy’. We agree.
Clean and green power producer
Toronto-based Northland Power Inc. (TSX—NPI) earned more than ever in 2016, and it’s expected to earn more this year and much more next year. This will sustain the company’s attractive dividends. It may even raise the dividend. Independent power producer NPI “develops. builds, owns and operates facilities that produce ‘clean’ (natural gas) and ‘green’ (wind, solar, and hydro) energy, providing sustainable long-term value to shareholders.”
Chief executive officer John Bruce said: “Our investments in offshore wind in Europe and other initiatives that contribute to long-term growth are now bearing fruit. . . . We successfully delivered our Grand Bend [Ontario] wind farm into operation under budget and ahead of schedule.” In 2017, Grand Bend will contribute to NPI’s earnings for a full year.
Gemini, its 600 MW offshore wind farm in the North Sea, continues to earn significant pre-completion revenue. The company’s Nordsee One 332 MW offshore wind farm in the North Sea is expected to achieve full commercial operations by the end of the year. On March 4, NPI agreed to acquire a 252 MW German offshore wind farm.
In 2017, NPI is expected to earn 97 cents a share. This would represent a 19.8 per cent jump in its earnings per share. Based on this estimate, the shares trade at a hefty price-to-earnings, or P/E, ratio of 25.3 times. Next year, however, the company’s earnings are expected to soar to $1.75 a share. Based on this estimate, the shares trade at P/E ratio of 14 times.
The growing earnings will enable NPI to continue to pay $1.08 a share—as it has done for years. The dividend yields an attractive 4.39 per cent. With management owning nearly a third of the shares, it is in its interests to maintain the dividend. Management’s large stake also makes its interests similar to yours.
The consensus recommendation of three analysts is a ‘buy’. We agree.
This is an edited version of an article that was originally published for subscribers in the May 2017/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
The MoneyLetter, MPL Communications Inc.
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