Tom Konrad CFA
March and April were months of recovery for the broad market and for clean energy income stocks, but most clean energy stocks failed to participate in the rally. By design, my Ten Clean Energy Stocks for 2016 model portfolio is heavily weighted towards income, recovering 9% in March and 6% in April so that it is now back in the black, up 0.8% year to date. This puts it ahead of its benchmark, which is down 0.8% through the end of April.
I want to thank Aurelien Windenberger for stepping in with an interim update, now that I’ve switched to only writing these every other month. While he does not follow all 10 stocks closely himself, he does follow many of them, and his comments on Terraform Global were particularly timely. I hope they allowed some readers to scoop up shares of the stock I called one of the most compelling speculations I’ve seen in a long time when it was trading below $2.50.
I also hope readers paid attention at the start of March when I took the risk of making what may be the most bullish public call I’ve ever written:
In my decade and a half watching the stock markets, I have only seen as many compelling buying opportunities as I see today at the start of 2009. …
I’m excited about most of the stocks on this list at their current prices, but Pattern (PEGI) and MiX Telematics (MIXT) all stand out as screaming bargains, while Terraform Global (GLBL) is one of the most compelling speculations I’ve seen in a very long time.
I can’t say this enough: If readers have any cash still on the sidelines in this market, now is the time to buy. Buy and keep reinvesting the extremely high dividends on offer until prices rise.
I was cautious about when a rebound might happen, but said that the high dividend yields available from most of these stocks would more than compensate for the wait. As it was, there was no wait (except for Terraform Global, where the wait was just a month.) For the two months since the call, Pattern is up 26%, and MiX is up 18%. The whole list, as well as the market in general (with the exception of clean energy growth stocks) did well, too.
Clean energy growth stocks fared less well. My benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), was up only 1.3% over the two months, and remains down 12.8% for the year. My three growth picks did better, up 12.0% over two months, but remain down 7.2% for the year through April as well.
Income stocks did better, with Global X YieldCo Index ETF (NASD:YLCO) up 14.8% for two months, and 4.4% year to date. My seven income picks recovered slightly more (16.5%) from a worse starting point to end April up 4.3%. The Green Global Equity Income Portfolio, which I manage, also rose substantially (13.3%) over two months and is now up a solid 7.9% for the year to date.
The chart above gives detailed performance for the individual stocks. Significant news driving individual stocks is discussed below.
Pattern Energy Group (NASD:PEGI)
12/31/15 Price: $20.91. Dec 31st Forward Annual Dividend: $1.488 (7.1%). Beta: 1.22. Low Target: $18. High Target: $35.
4/29/16 Price: $21.00. YTD Dividend: $0.381. Forward Annual Dividend:$1.524 (7.3%) YTD Total Return: 2.4%
Wind Yieldco Pattern Energy’s recent advance makes far more sense to me than its decline at the start of the year. There was not any significant news in April, but the stock continued the advance it began in March.
Pattern will release first quarter results before the market opens on May 9th.
Enviva Partners, LP (NYSE:EVA)
12/31/15 Price: $18.15. Dec 31st Forward Annual Dividend: $1.76 (9.7%). Low Target: $13. High Target: $26.
4/29/16 Price: $22.71. YTD Dividend: $0.46 Forward Annual Dividend: $2.10 (9.2%) YTD Total Return: 9.4%
Wood pellet focused Master Limited Partnership (MLP) and Yieldco Enviva Partners, unlike almost all the mainstream Yieldcos, is once again trading above its $22 IPO price. This should allow new secondary offerings of stock and enable additional drop-downs of new wood pellet facilities from its private sponsor. Such drop downs would likely allow Enviva to exceed its 2016 guidance for $271 to $2.87 of distributable cash flow and $2.10 of distributions per unit.
Green Plains Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. Dec 31st Forward Annual Dividend: $1.60 (9.8%). Low Target: $12. High Target: $22.
4/29/16 Price: $14.35. YTD Dividend: $0.4025. Forward Annual Dividend: $1.62 (11.3%) YTD Total Return: -8.9%
Like Enviva, Green Plains is a new MLP and Yieldco. The company’s contracts with its parent, Green Plains (GPRE), also insulate it from the general level of economic activity and commodity markets. However, this insulation is only as good as its parent’s solvency. While GPRE has a strong balance sheet, its ethanol operations are exposed to commodity markets, especially the oil price.
With the oil price starting to recover, GPP’s share price has begun to recover as well.
On April 21st, Green Plains Partners again increased its quarterly distribution slightly, to $0.405 per share, payable to unitholders of record on May 6th.
NRG Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. Dec 31st Forward Annual Dividend: $0.86 (6.2%). Beta: 1.02. Low Target: $11. High Target: $25.
4/29/16 Price: $15.13. YTD Dividend: $0.225. Forward Annual Dividend: $0.925 (6.1%) YTD Total Return: -9.4%
Yieldco NRG Yield (NYLD and NYLD/A) has also been recovering nicely. I believe this is partly due to the g
eneral recovery of the sector, and partly due to growing confidence that the Yieldco still has the support of its sponsor, NRG.
The company will report its first quarter results on May 5th.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. Dec 31st Forward Annual Dividend: $1.10 (19.7%). Beta: 1.22. Low Target: $4. High Target: $15.
4/29/16 Price: $2.91. YTD Dividend: $0.275. Forward Annual Dividend: $1.10 (37.8%). YTD Total Return: -41.9%
Yieldco Terraform Global’s sponsor, SunEdison (SUNE), finally entered bankruptcy protection in June. Speculation abounds as to if it and its sister Yieldco, Terraform Power (TERP), might be drawn into a SunEdison bankruptcy, but I believe that the debtor-in-posession nature of the bankruptcy makes the chances of this already unlikely scenario even more remote.
On April 21th, both Terraforms named Peter Blackmore as interim CEO, to replace the former CFO of SunEdison, who had been serving in that role. Blackmore was previously head for the Yieldcos’ conflicts committees, and was previously unaffiliated with SunEdison. Such steps to develop in-house management are part of the Yieldcos’ moves to establish themselves as truly independent companies. They also needs develop their own internal accounting- the reliance on SunEdison means that neither has yet filed its 2015 annual report, let alone their first quarter results.
Some of Terraform Global’s contracts allow for termination in a SunEdison bankruptcy, and I believe that fear of such terminations is keeping investors away from the stock. Even if such contracts are terminated, the termination does not erase the value of the power from its solar farms. Some power purchasers may have the ability to renegotiate contracts with Terraform Global, but the market seems to be treating the company as if those renegotiations will lead to an end of payments. That will not happen if the customers need the energy, which they do. All these PPAs are recent, and were entered into by utilities that wanted to purchase the power.
Terraform also has a dispute with SunEdison over the purchase of 425 MW of Indian solar farms which now may never be completed. SunEdison’s bankruptcy throws into question what sort of compensation the Yeildco will receive for its down payments, but some such compensation is likely to be in order.
In summary, the situation at Terraform Global is mostly unknowns, but the company is belatedly making the right moves to distance itself from SunEdison. The question for investors is, how much of the cash raised in the $15 per share IPO is owned by Terraform Global, either as cash, or as operating projects with buyers for the power. While this is likely less than the $7.40 book value per share reported at the end of September, 2015, it’s also likely far more than the current $2.91 share price. Abengoa (soon to be Atlantica) Yield (ABY) is much farther along the path towards distancing itself from its (nearly) bankrupt sponsor, Abengoa. ABY trades at approximately book value.
Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/15 Price: $18.92. Dec 31st Forward Annual Dividend: $1.20 (6.3%). Beta: 1.22. Low Target: $17. High Target: $27.
4/29/16 Price: $19.40. YTD Dividend: $0.30. Forward Annual Dividend: $1.24 (6.2%). YTD Total Return: 4.1%
Clean energy financier and REIT Hannon Armstrong rang the closing bell at the New York Stock Exchange to celebrate Earth Day. The fact that I bother to mention this is testament to the lack of any substantial news since the last update. First quarter results will be announced on May 4th.
TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/15 Price: C$10.37. Dec 31st Forward Annual Dividend: C$0.84 (8.1%). Low Target: C$10. High Target: C$15.
4/29/16 Price: C$12.38. YTD Dividend: C$0.293 Forward Annual Dividend: C$0.88 (7.1%) YTD Total Return (US$): 35.3%
TransAlta Renewables continues to be one of the strongest performers among Yieldcos, helped in part by the rising Canadian dollar, and partly by its continuing ability to tap the capital markets to fund further acquisitions. The company reported its first quarter results on April 28th, with cash available for distribution per share growing 32% to C$0.37 from C$0.28 a year earlier, while dividends per share increased 16% to C$0.22. This leaves plenty of room for the Yieldco to invest in new projects or raise the already generous dividend further.
Renewable Energy Group (NASD:REGI)
12/31/15 Price: $9.29. Annual Dividend: $0. Beta: 1.01. Low Target: $7. High Target: $25.
4/29/16 Price: $9.72. YTD Total Return: -4.6%
Advanced biofuel producer Renewable Energy Group (REG) benefits from both national and regional incentives which already give robust support to the biodiesel market and are likely to lead to a biodiesel boom in 2016 and beyond. REG is poised to be one of the primary beneficiaries of this boom.
Iowa’s House and Senate agreed to expand and extend state incentives in April, which will only add fuel to the fire when they are signed into law.
MiX Telematics Limited (NASD:MIXT; JSE:MIX).
12/31/15 Price: $4.22 / R2.80. Dec 31st Forward Annual Dividend: R0.08 (2.9%). Beta: -0.13. Low Target: $4. High Target: $15.
4/29/16 Price: $4.08 / R2.30. YTD Dividend: R0.02/$0.12 Forward Annual Dividend: R0.08 (3.6%) YTD Total Return: -2.5%
Software as a service fleet management provider MiX Telematics continued to recover from its lows along with the oil price. Fuel savings make MiX’s solutions quickly pay for themselves, but in the current low fuel price environment, MiX is working to emphasize another substantial advantage of its services. The company just launched an extended Hours of Service solution to help fleet managers improve safety by managing driving hours.
The company will announ
ce its full year results for the twelve months ending March 31st before the market opens on May 26th.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend: $0. Beta: 1.1. Low Target: $5. High Target: $15.
4/29/16 Price: $4.47. YTD Total Return: -23.7%
Energy service contractor Ameresco has been a consistent under-performer in this list. This has mostly been the result of management under performance which the company is paying for in terms of poor results: A large Canadian contract outside their core business which they bid too aggressively for, and the acquisition of a energy monitoring software business which did not produced the results that they had hoped for.
Low energy prices have also payed their part, something to be expected in a business that helps customers cut their energy bills, but I am beginning to wonder if this company’s long term under performance has more to do with weak management than a cyclical downturn, as I previously believed.
The company will also announce first quarter results on May 5th. If a positive surprise sends the stock up significantly, I may take the opportunity to exit. I love the company’s core business of saving customers money through energy efficiency, but the company has failed for years to make that business as profitable as I hoped it would be.
Two months ago, I used this space to urge readers to buy, both because the market seemed generally undervalued, and also because of specific stocks which seemed (and proved to be) incredible bargains. After gains for roughly 15%, I still think many of these stock are cheap, but I am slightly more cautious. My favorite picks are currently Terraform Global and Green Plains Partners, which might be good places to redeploy cash when rebalancing other winners.
Long-term followers of this list are likely to have significant cash to deploy in the near future, since the buyout of Capstone Infrastructure (TSX:CSE, OTC:MCQPF) closed on Friday. I recommended Capstone in 2014 at C$3.55 and again in 2015 at C$3.20. The buyout by iCON Infrastructure Partners was for C$4.90, plus C$0.67 in dividends for 2014 buyers (a total 57% gain), and C$0.37 for buyers in 2015 (a 65% total gain). These gains are somewhat offset by the 15% decline in the Canadian dollar since the start of 2014, and its 3% decline since the start of 2015.
Long term pick New Flyer (TSX:NFI, OTC:NFYEF) has also reached levels that have had me sell a significant portion of my stake both for rebalancing and because the high price has reduced its dividend yield below 2%. When I confidently wrote that the shares were “worth at least C$12.26” in 2011 (they were trading for C$7.66) I never imagined I’d be selling for C$37 five years later. I just like undervalued green companies with 8% dividend yields. Who doesn’t?
Disclosure: Long HASI, AMRC, MIXT,, RNW/TRSWF, PEGI, EVA, GPP, NYLD/A, REGI, GLBL, CSE/MCQPF, NFI/NFYEF
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.