Best stock to invest in
Tom Konrad, Ph.D., CFA
Clean Energy Stocks for 2016 model portfolio continued to
coast upward in August after five months of blistering performance
since February, while clean energy sector benchmarks and real
managed portfolio, the Green Global Equity Income Portfolio (GGEIP),
pulled back slightly. The following chart shows the
performance of the model portfolio and its sub-portfolios against
The portfolio, its growth and income subportfolios, and GGEIP all
remain far ahead of their benchmarks. Second quarter earnings
announced this month were neutral or positive for the income stocks,
but somewhat disappointing for the growth companies, causing the
income group to pull farther ahead of its benchmark, and the growth
group to lose a little ground.
See the May
update for a description of the benchmarks.
Opportunity to invest in GGEIP strategy
Last month, I mentioned that I was in advanced talks with a mutual
fund company to bring the Green Global Equity Income strategy to the
public as a mutual fund. I met with them for the fourth time last
month, but they decided to pass, in large part because my emphasis
on small and relatively illiquid stocks may put a limit on how large
(and hence profitable) such a mutual fund can become.
Fortunately, I’ve been working on alternatives, two of which are now
available for small investors. My friend and colleague Jan
Schalkwijk, CFA at investment advisor JPS Global Investments
is now offering a version of the GGEIP strategy to his clients (new
or existing) clients. If you are interested, you can contact him here.
There is a also stripped-down but free
version of GGEIP I launched on the Motif platform in June.
Or you can just continue to follow the income stocks in this annual
model portfolio. Although this group of seven is outperforming
most other versions of the strategy this year, I think that
difference is mostly luck. The strategy had
an excellent year in 2015 as well: The six income
stocks were up 24% and GGEIP was up 12% even though their income
benchmark fell 30% because of the
bursting of the Yieldco bubble.
The chart above gives detailed performance for the individual
stocks. Selected news driving individual stocks is discussed
Pattern Energy Group
12/31/15 Price: $20.91. Dec 31st Annual Dividend: $1.488
(7.1%). Beta: 1.22. Low Target: $18. High
7/31/16 Price: $23.80. YTD Dividend: $1.161. Expected
2016 Dividend:$1.58 (6.6%) YTD Total Return: 23.1%
Wind Yieldco Pattern Energy’s revenues were at the low end of the
company’s projections due to generally low wind speeds, but earnings
and cash available for distribution (CAFD) were strong due to good
cost management and performance of the company’s wind farms.
The company also announced
the sale of 10 million shares of stock at $23.90, with an
additional 1.5 million share underwriter’s option. It intends
to use the cash to fund the purchase of the 180 MW Armow Wind
power facility in Ontario from its sponsor. I expect the
acquisition to increase CAFD and dividends per share even after the
dilutive effects of the share issue.
Enviva Partners, LP
12/31/15 Price: $18.15. Dec 31st Annual Dividend:
$1.76 (9.7%). Low Target: $13. High Target: $26.
7/31/16 Price: $25.47. YTD Dividend:
$1.495 Expected 2016 Dividend: $2.10 (8.2%)
YTD Total Return: 25.8%
Wood pellet focused Master Limited Partnership (MLP) and Yieldco
Enviva Partners increased its distribution to $0.525, and increased
its full distributable cash flow guidance from $67-$71 million
to $70-$72 million. The company reaffirmed full year
distribution guidance of at least $2.10 per unit. The new
guidance increases the likelihood that Enviva will distribute more
The market seems to have gotten the message that this wood pellet
manufacturer has fuel to burn: The stock was up 19% for the month.
Plains Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. Dec 31st Annual
Dividend: $1.60 (9.8%). Low Target: $12. High
7/31/16 Price: $18.42. YTD Dividend:
$1.218. Expected 2016 Dividend: $1.64 (8.9%) YTD Total
Ethanol production Yieldco Green Plains Partners
increased its quarterly distribution to $0.41 per unit, and reported
$0.43 in per unit income for the quarter. It’s parent
company, Green Plains (GPRE)
produced a record volume of ethanol in the second quarter. In
the first quarter, the partnership relied on minimum volume
guarantees from its parent to support revenues. The recovery
in ethanol volumes means that GPRE no longer needs to rely on these
Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. Dec 31st Annual Dividend:
$0.86 (6.2%). Beta: 1.02. Low Target: $11. High
7/31/16 Price: $16.09. YTD Dividend: $0.695.
Expected 2016 Dividend: $0.96 (6.0%) YTD Total Return: 27.7%
The Yieldco entered an agreement to acquire the 51% of the
California Valley Solar Ranch Holdco it does not already own from
its parent. The transaction was financed with $200 million of
senior secured debt financed with a 4.68% interest rate.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. Dec 31st Annual Dividend:
$1.10 (19.7%). Beta: 1.22. Low Target: $4. High
7/31/16 Price: $3.48. YTD
Dividend: $0.275. Expected 2016 Dividend: $0.60 (17.2%).
YTD Total Return: -30.6%
Yieldco Terraform Global’s delayed financial filings due to the
bankruptcy of its former sponsor, SunEdison (SUNEQ),
put it into technical default with some of its bondholders.
The company successfully
negotiated a waiver extending the deadline for filing the
delayed reports until December 6th.
It was also reported
that Indian company Greenko would pay $100 million for
SunEdison’s Indian assets along with the assumption of outstanding
debt, including some nonoperational assets which SunEdison had
agreed to transfer to Terraform Global upon completion in exchange
for an advance payment prior to its bankruptcy. It is not
clear how the continuing dispute between the Yieldco and SunEdison
over the use of the advance payment will affect this deal.
Sustainable Infrastructure (NYSE:HASI).
12/31/15 Price: $18.92. Dec 31st Annual
Dividend: $1.20 (6.3%). Beta: 1.22. Low
Target: $17. High Target: $27.
7/31/16 Price: $23.98. YTD Dividend:
$0.60. Expected 2016 Dividend: $1.25 (5.2%). YTD
Total Return: 22.3%
Clean energy financier and REIT Hannon Armstrong
reported increased second quarter core earnings to $0.32
per share, easily enough to continue to support the current
dividend of $0.30 per share and an expected increase to at least
$0.34 per share in December.
Hannon Armstrong has a target of paying out 100% of core earnings
in dividends and a policy of increasing the dividend once per year
in the fourth quarter. Since Core Earnings have historically
always increased or held constant from quarter to quarter, they
typically lag the dividend in the first two quarters, but exceed
them in the second half of the year.
I expect this year to be different. Results in the first
half of the year were boosted by a larger securitizations (selling
assets to third parties rather than keeping them on the
books.) While producing strong earnings in the quarter when
they happen, securitizations produce no ongoing income.
After raising $91 million in equity in June, the company will
again return to placing more transactions on the balance sheet, a
change which I expect to reduce core earnings in the third quarter
before returning to growth in the fourth quarter.
I expect my anticipated decline in third quarter earnings in
early November to catch some investors by surprise.
Investors looking to buy the stock should wait until then.
Investors considering taking some gains may want to sell before
the November announcement.
Renewables Inc. (TSX:RNW,
12/31/15 Price: C$10.37. Dec 31st
Annual Dividend: C$0.84 (8.1%). Low Target:
C$10. High Target: C$15.
7/31/16 Price: C$14.08. YTD Dividend:
C$0.586 Expected 2016 Dividend:
C$0.88 (6.3%) YTD Total Return (US$): 50.8%
Canadian listed Yieldco TransAlta Renewables reported
results “tracking toward the upper end of the guidance we
provided for 2016.” The company’s major South Hedland
project continues on budget and on schedule for completion in
mid-2017. The company anticipates a further dividend
increase when it is delivered.
Renewable Energy Group
12/31/15 Price: $9.29. Annual Dividend: $0.
Beta: 1.01. Low Target: $7. High Target: $25.
7/31/16 Price: $8.97. YTD Total
Advanced biofuel producer Renewable Energy Group reported
strong market demand for biomass based diesel and increased
sales, which were limited only by production capacity. But
per share earnings of $0.16 fell short of analyst’s expectations,
causing the stock to pull back.
Federal and state support remains strong, and analysts have been
raising current year earnings estimates. I believe the
current pullback provides an excellent opportunity for short term
gains before the end of the year.
MiX Telematics Limited
12/31/15 Price: $4.22 / R2.80. Dec
31st Annual Dividend: R0.08 (2.9%). Beta:
-0.13. Low Target: $4. High Target: $15.
7/31/16 Price: $4.99 / R2.90. YTD Dividend:
R0.06/$0.101 Expected 2016 Dividend:
R0.08 (2.8%) YTD Total Return: 23.5%
Software as a service fleet management provider MiX Telematics
rose in its native currency, the South African Rand, but these
gains were erased by the strong dollar.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend:
$0. Beta: 1.1. Low Target: $5.
High Target: $15.
7/31/16 Price: $4.78. YTD Total Return: -15.7%
Energy service contractor Ameresco continued to report strong
growth in revenue, earnings, and cash flow. While the
past few years have been disappointing, I believe that the company
has returned to sustainable growth and expect the stock to
continue to recover.
The broad stock market been very strong this year despite continued
and increasing global uncertainty. This is likely because US
economy has appeared to be a lone bright spot. Indications of
future growth have been mixed however, and I believe a defensive
stance is warranted. While none of these stocks is the
screaming bargain they were in the first quarter, the income stocks
remain inexpensive and good defensive plays going forward.
While more sensitive to a weakening economy, the three growth stocks
remain extremely cheap, especially REGI and MIXT. These low
valuations limit their downside should the broad market fall, while
allowing for large gains if they catch investors’ attention.
Disclosure: Long HASI, AMRC, MIXT,, RNW/TRSWF, PEGI, EVA,
GPP, NYLD/A, REGI, GLBL, TERP, GPRE
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
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