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Tom Konrad Ph.D., CFA
Colossal Fossil Failure
With a president actively hostile towards renewable energy and
focused on promoting fossil fuels, it would be easy to think that
clean energy stocks would underperform their fossil cousins.
The exact opposite has been true. Despite the administrations’
efforts and tweets bragging about new highs for the Dow, energy
funds are down over 10% for the year. For example, the Energy
Select Sector SPDR (XLE), largely composed of oil and gas companies,
is down 13% for the year. The tiny coal sector did better,
with the VanEck Vectors Coal ETF up 18%.
Even so, Trump’s favorite industry was behind the one he seems to
hate the most, clean energy. The broadly held Clean Energy ETF
which I use as a benchmark for my growth stock picks is up 24% year
to date, which my clean energy income stock benchmark (the Yieldco
is up 20%.
Perhaps this administrations’ ineffectiveness is simply the result
of the chaos resulting from the many investigations into the
possible corrupt practices that may have helped bring this
administration into power. Or perhaps the media spotlight has
helped the solar and wind industries bring the message to a broad
audience that solar, wind and energy efficiency are the most cost
effective energy resources. The President can remove
environmental regulations and allow coal companies to increase their
profits from existing plants and the expense of citizens’ health,
but he can’t make new coal plants more economic than solar and wind,
no matter how many regulations he removes. Wind and solar have
simply come too far for a mature technology like coal to catch
In short, the President may brag about the stock market, be his
efforts have little to do with its actual performance.
While clean energy has been doing well, and my Ten
Clean Energy Stocks model portfolio has been doing
better. For the year to July 31st, the portfolio is up 24.7%
compared to 20.8% for its benchmark. The success has been
driven by the core eight income stocks (up 24.8% vs 19.6% for YLCO.)
My real managed Green Global Equity Income Portfolio (GGEIP) is up
19.9%, slightly ahead of the same benchmark. My two growth
picks are up 22.2%, closing in on their benchmark PBW at 23.8%.
See the chart below for detailed performance over the two months
May 31st update.
Pattern Energy Group
12/31/16 Price: $18.99. Annual Dividend: $1.63
(8.6%). Expected 2017 dividend: $1.64 to $1.67. Low
Target: $18. High Target: $30.
7/31/17 Price: $25.10. YTD Dividend: $0.832 (4.4%).
Annualized Dividend: $1.655. YTD Total Return: 37.3%
Wind-focused Yieldco Pattern Energy Group made a strong 13% gain in
June and July without any significant news.
This move is mostly in line with other Yieldcos, most of which made
gains for the two months. The Yieldco ETF (YLCO)
was up 7%. I believe this trend is mostly due to the market
realizing that the Trump administration can do little to undermine
Yieldco profitability, combined with a return to more normal
valuations in the wake of the 2015 Yieldco bust. Pattern’s
somewhat stronger move compared to other Yieldcos is most likely a
function of better valuation.
12/31/16 Price: $12.98. Annual Dividend: $1.00 (7.7%). Expected
2017 dividend: $1.00 to $1.05. Low Target: $10.
High Target: $20.
7/31/17 Price: $14.75. YTD Dividend: $0.521 (4.0%)
Annualized Dividend: $1.04. YTD Total Return: 17.9%
8point3 Energy Partners gained 10% for the two months, also
ahead of the average Yieldco. This is most likely due to its
relatively high dividend yield.
I believe that 8point3 is somewhat overvalued at the current
price. Both its parent companies, First Solar (FSLR)
and SunPower (SPWR)
have said that they want to sell their stakes, and an examination of
the Yieldco’s financials leads me to believe that they are unlikely
to find a buyer for more than $13 a share. If they can’t
find a buyer, I believe that 8point3 will be forced to drastically
cut its dividend in the next one to three years, a move which will
almost certainly send the share price tumbling.
I have sold my position in CAFD and sold short calls on the stock.
Sustainable Infrastructure (NYSE:HASI).
12/31/16 Price: $18.99. Annual Dividend: $1.32
(7.0%). Expected 2017 dividend: $1.34 to
$1.36. Low Target: $15. High Target: $30.
75/31/17 Price: $23.25. YTD Dividend: $0.66
(3.5%). Annualized Dividend: $1.32. YTD Total
Sustainable infrastructure and clean energy financier Hannon
Armstrong continued to advance over the last two months. On
August 3rd, it announced solid second quarter results slightly
ahead of analysts’ forecasts, and continued its slow
advance. Its 34 cents of core earnings for the quarter
topped its current dividend of 33 cents. This is significant
because HASI has a target of paying out 100% of core earnings as
dividends over the course of a year.
Given the core earnings growth trend, I expect the company to
raise its quarterly dividend to at least 35 cents per share in
December. Previously, my low end estimate was 34
cents. My high end estimate remains at 37 cents per share.
Yield, A shares (NYSE:NYLD/A)
12/31/16 Price: $15.36. Annual Dividend: $1.00
(6.5%). Expected 2017 dividend: $1.00 to
$1.10. Low Target: $12. High Target: $25.
7/31/17 Price: $18.23. YTD Dividend: $0.53 (2.6%).
Annualized Dividend: $1.08. YTD Total Return: 22.4%
In July, Yieldco NRG Yield’s (NYLD
and NYLD/A) parent, NRG Energy (NRG), announced that it was
looking for a buyer for its stake. NRG Yield’s stock rose on
the news, but at the current price of $18, I don’t expect that there
is much room for a buyer to pay a premium. Using a similar
methodology as I
used for 8point3, I estimate that a buyer should be willing to
pay between $15 and $21 per share for 8point3, based on my estimate
of sustainable CAFD per share of approximately $1.50 to $1.70.
Yield, PLC (NASD:ABY)
12/31/16 Price: $19.35. Annual Dividend: $0.65 (3.4%).
Expected 2017 dividend: $0.65 to $1.45. Low Target: $10.
High Target: $30.
7/31/17 Price: $21.61. YTD Dividend: $0.25 (2.6%).
Annualized Dividend: $1.00. YTD Total Return: 14.4%
Atlantica Yield did not participate fully in the general Yieldco
rally, gaining only 3.5% over the two month period. The
company continues to be held back by the delay in obtaining a waiver
from the creditors of its ACT cogeneration power station in
Mexico. The plant itself has been performing well, according
to the Yieldco’s second
quarter earnings release on August 3rd. The company also
announced a quarterly dividend increase to $0.26 “reflecting a
positive outlook regarding the resolution of some of our last
I like Atlanica’s cautious approach with its dividend, which allows
the company to retain cash and make small acquisitions like a 4 MW
mini-hydro plant in Peru on July 20th, despite the company’s current
depressed stock price. I was hopeful, however, that Atlantica
would have obtained the necessary waivers by this point, and
increased the dividend much further.
Energy Partners (NYSE:NEP)
12/31/16 Price: $25.54. Annual Dividend: $1.36 (5.3%).
Expected 2017 dividend: $1.38 to $1.50. Low
Target: $20. High Target: $40.
7/31/17 Price: $41.22. YTD Dividend: $0.718
(2.8%). Annualized Dividend: $1.52. YTD Total
NextEra Energy Partners continues to be the star of
the Yieldco space, and has now reached a point where it should be
able to fund acquisitions with secondary offerings of stock.
As long as investors are willing to buy more shares at its current
yield of below 4%, NEP should be able to maintain its target annual
per share dividend growth of 12% to 15%.
I personally prefer Yieldcos with higher current yields and lower
growth prospects, and so have been taking profits on my position.
I am happy to see NEP’s share price recovery, and not just because
of the capital gains. The long term dividend growth NextEra
Energy Partners hopes to deliver will require the purchase of ever
larger numbers of clean energy projects, or even entire
Yieldcos. This renewed appetite for clean energy projects will
lower the capital costs for future wind and solar farms, increasing
the number that will be built.
Other Income Stocks
Holding Corp. (NYSE:CVA)
12/31/16 Price: $15.60. Annual Dividend: $1.00
(6.4%). Expected 2017 dividend: $1.00 to
$1.06. Low Target: $10. High Target: $30.
7/31/17 Price: $15.10. YTD Dividend: $0.50 (3.2%)
Annualized Dividend: $1.00. YTD Total Return: 0.2%
Waste-to-energy developer and operator Covanta reported strong
second quarter results on July 27th. The company reported a
strong waste disposal market. Covanta President and CEO called it
a “good time to be a waste company” on the conference
call. Revenue per ton increased 3.3% year over
year. The company also expects increases in the prices it
will get for recycled metals because of a new sorting
facility. The one sour note was continued weakness in energy
With the completion of company’s new Dublin Facility to be
financed entirely with non-recourse debt, Covanta expects to begin
to pay down debt towards the end of the year.
The market liked what it heard, reversing a 9% decline in June
with a 14% increase in July.
Series G Preferred (NYSE:SSW-PRG)
12/31/16 Price: $19.94. Annual Dividend: $2.05
(10.3%). Expected 2017 dividend:
$2.05. Low Target: $18. High Target: $27.
7/31/17 Price: $22.26. YTD Dividend: $1.53 (7.7%).
Annualized Dividend: $2.05. YTD Total Return: 19.4%
Leading independent charter owner of container ships Seaspan
reported second quarter results on August first. The market
for container ship leases continues to improve, as does Seaspan’s
balance sheet. The company paid down $147 million in net
debt over the quarter, in part ($34 million) financed by the
issuance of new common shares. For holders of the preferred
stock, this is unadulterated good news, since we suffer no
dilution from the new common stock (which is junior to preferred)
but still gain from the stronger balance sheet.
MiX Telematics Limited
12/31/16 Price: $6.19. Annual Dividend: $0.14
(2.3%). Expected 2017 dividend: $0.14 to
$0.16. Low Target: $4. High Target: $15.
7/31/17 Price: $8.14. YTD Dividend: $0.076 (1.2%).
Annualized Dividend: $0.14. YTD Total Return: 32.8%
Vehicle and fleet management software as a service
provider MiX Telematics reported quarterly results on August 3rd,
with subscriber growth running ahead of expectations. The
company also raised its quarterly dividend by 25%. As CEO
Stephan Joselowitz put it, “the company has reached an inflection
point in regards to margin accretion, particularly as MiX is
moving out of a heavy investment cycle into a phase where we are
starting to enjoy the returns on these investments.”
Shareholders should buckle their seat-belts and continue to enjoy
Aspen Aerogels (NYSE:ASPN)
12/31/16 Price: $4.13. Annual Dividend and expected 2017
dividend: None. Low Target: $3. High Target: $10.
7/31/17 Price: $4.61. YTD Total Return: 11.6%
In recent updates, I’ve predicted that aerogel
insulation manufacturer Aspen’s stock would underperform, although I
maintained a positive long term outlook. In fact, it has been
in a slow rising trend, even if it was a little slower than clean
energy stocks in general. On August 3rd, Aspen reported
second quarter results, and the market reacted positively to the
improving (if still weak) business fundamentals.
For me, it looks like Aspen will likely be “the one that got away,”
but I will continue to monitor the stock for readers who did not
sell at the bottom, as I did.
I’ve added to my positions in Seaspan Preferred and Covanta in
the last two months. I have reduced my effective position in
NRG Yield (and taken some profits) by selling covered calls.
I’ve increased my short position in 8point3 by selling uncovered
Although the economics of clean energy are strong, recent stock
market highs, the likely slow increase in interest rates, and
political uncertainty make the stock market a risky place to be
right now. While I am skeptical about the sustainability of
8point3’s dividend, my short calls on the stock also serve the
function of partially hedging my investments in other Yieldcos.
Despite (or because of) the recent gains in the market and clean
energy stocks, now seems a good time to invest cautiously.
Disclosure: Long HASI, MIXT, PEGI, NYLD/A, CVA, ABY, NEP,
SSW-PRG, ASPN, GLBL, TERP. Long puts on SSW (an effective
short position held as a hedge on SSW-PRG. Short calls on
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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