My Ten Clean Energy Stocks for 2015 model
portfolio had a good May, despite headwinds from the strengthening
dollar and declines in clean energy stocks in general. As a whole, the
model portfolio rose 2.2 percent for the month, the same as my broad
market benchmark. In general, clean energy stocks did worse, with the
Powershares Wilderhill Clean Energy ETF (PBW)
down 1.9 percent for the month. The portfolios clean energy benchmark,
which blends PBW with the more income oriented Utility ETF, JXI, was
flat.
For the year to date, the portfolio is up 7.4 percent, ahead of all its
benchmarks for the first time this year. Their YTD returns were 3.9
percent for IWM, 7.2 percent for PBW, 1.4 percent for the blended
benchmark, and -2.5 percent for JXI. Income Portfolio Performance and New Benchmark: YLCO
The six-stock income oriented sub-portfolio continues to shine, up 1.9 percent for the month and 16.5 percent YTD. The fossil fuel free income oriented portfolio I manage with Green Alpha Advisors, GAGEIP, also continues to do well. It is up 1.5 percent for the month and 10.2 percent YTD.
The benchmark for these income portfolios is JXI (up 1.2 percent for May and down 2.5 percent YTD), but as I discussed in previous articles, it is an unsatisfactory benchmark because it lacks a clean energy focus. That changed on May 28th, with the launch of the Global X YieldCo Index ETF (NASD:YLCO), which focuses on global income-producing clean energy power producers that pay high dividends. Three of YLCO's 20 holdings are also in this portfolio TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF), (Hannon Armstrong Sustainable Infrastructure (NYSE:HASI), and Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF), but they comprise only 9.2 percent of YLCO compared to half of the income stocks in my model portfolio.
One of the most important functions of a benchmark is to indicate what part of a portfolio's return is due to stock selection, as opposed to sector and overall stock market performance. Hence, YLCO is a much better benchmark for a clean energy income portfolio than JXI because it is also focused on income producing clean energy stocks. Going forward, I intend to add YLCO as in income benchmark, and substitute it for JXI in the blended clean energy benchmark for the whole portfolio. I will back-fill performance data for YLCO using JXI for the first five months of the year unless I am able to obtain historical performance information from its underlying Indxx Global YieldCo Index.
Value/Growth Portfolio Performance
The four stock value and growth sub-portfolio gained 2.6 percent for the month, and now is down 6.2 percent for the year. This remains far behind its benchmark, PBW, which fell 1.9 percent for the month but is up 7.2 percent year to date.
The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month's news for each stock.
The low and high targets given below are my estimates of the range
within which I expected each stock to finish 2015 when I compiled the
list at the end of 2014.
Income Stocks
1. Hannon Armstrong Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
5/29/2015 Price: $20.48. YTD Dividend: $0.52 YTD Total Return: 47.6%.
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
5/29/2015 Price: $20.48. YTD Dividend: $0.52 YTD Total Return: 47.6%.
Sustainable infrastructure financier and Real Estate
Investment Trust Hannon Armstrong continues to go from strength to
strength. The company released first quarter earnings in line with its
previous guidance, growing Core Earnings by 35% over the previous year.
Although I don't consider HASI overvalued at current prices, I have
been selling in my own and managed portfolios for re-balancing. As I
wrote many times in 2013 and 2014, I felt it was extremely undervalued
in the $10-$13 range in 2013 and 2014. It was my largest position at the
start of the year. Now that it's up almost 50% and more fairly valued,
I'm selling to bring it back in line with the rest of my holdings.
Long-time readers who also acquired large stakes below $13 should also consider taking some profits. The company released its
annual Sustainability Report Card. The company estimates "that assets
financed by Hannon Armstrong in 2014 will reduce emissions by more than
340,577 metric tons of GHG per year, equivalent to more than 165,000
tons of coal, and save more than 145 million gallons of water
annually." That's one annual metric ton of GHG saved for every 96 HASI
shares, one annual ton of coal saved per 197 HASI shares, and 4.5 annual
gallons of water saved per HASI share.
2. General Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
5/29/2015 Price: $18.89. YTD Dividend: $0. YTD Total Return: 26.8%.
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
5/29/2015 Price: $18.89. YTD Dividend: $0. YTD Total Return: 26.8%.
International manufacturer of electrical and fiber optic cable
General Cable Corp. reported strong first quarter results. After
adjusting for the sale of some divisions, revenue was up a modest 3%
over the same quarter a year earlier, but net profit more than doubled.
The company attributes the strength to its restructuring efforts,
careful management of working capital, and strong demand for submarine
products in Europe.
The company will pay a quarterly dividend of $0.18 on June 26th.
3. TransAlta Renewables Inc. (TSX:RNW, OTC:TRSWF)
12/31/2014 Price: C$11.48. Annual Dividend: C$0.84. Low Target: C$10. High Target: C$15.
5/29/2015 Price: C$12.65. YTD Dividend: C$0.32 YTD Total C$ Return: 13.0%. YTD Total US$ Return: 5.3%.
12/31/2014 Price: C$11.48. Annual Dividend: C$0.84. Low Target: C$10. High Target: C$15.
5/29/2015 Price: C$12.65. YTD Dividend: C$0.32 YTD Total C$ Return: 13.0%. YTD Total US$ Return: 5.3%.
Yieldco TransAlta Renewables did not advance as much as I expected
after increasing its monthly dividend to 7 Canadian cents. I believe
its failure to advance was due to rising interest rate expectations in
Canada. Rising interest rate expectations tend to hurt all income
investments, including yieldcos.
I continue to consider TransAlta Renewables to be very attractively
valued at the current price, but no longer like the company as much from
an environmental perspective. The acquisition of four natural gas
pipelines and a natural gas power station which is currently under
development has made TransAlta a lot less "renewable." When the gas
power station is commissioned, approximately a third of the yieldco's
assets will be transportation or electricity generation from natural
gas.
I am currently holding my positions in the company, but intend to sell when the stock is no longer so undervalued.
4. Capstone Infrastructure Corp (TSX:CSE. OTC:MCQPF).
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
5/29/2015 Price: C$3.13. YTD Dividend: C$0.15 YTD Total C$ Return: 2.5%. YTD Total US$ Return: -4.5%.
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
5/29/2015 Price: C$3.13. YTD Dividend: C$0.15 YTD Total C$ Return: 2.5%. YTD Total US$ Return: -4.5%.
Canadian power producer and developer (yieldco) Capstone
Infrastructure suffered from the same Canadian interest rate
expectations as TransAlta Renewables, but did not have a dividend
increase to offset that effect.
Revenues fell by 21%, and Adjusted Funds From Operations (AFFO) fell by two-thirds mainly because of the new power contract at Capstone's Cardinal facility offset by newly commissioned wind farms. The company maintained its full year forecast. AFFO is important because it is management's estimate of how much money they have available to pay dividends.
In 2013, before the agreement was signed, I made some estimates about its effect on 2015 AFFO.
The actual contract was essentially in line with my lowest estimate, which I predicted would result in a 2015 approximately C$21 million AFFO. First quarter AFFO was C$6.5 million, easily on track to exceed my low prediction, especially with the addition of theGoulais Wind Farm which was commissioned in May and will be contributing to results for the rest of the year.
At the current rate, 2015 dividends are likely to be a little above AFFO, but I expect the dividend to be maintained, despite the fact that the market seems to be pricing in a dividend cut. (The current dividend yield is 9.6 percent, many analysts feel that anything above 8% indicates expectations for a cut.)
I believe a cut is unlikely for several reasons, starting with company insider's confidence in the stock. Management has repeatedly said that they intend to maintain the dividend, and they have been buying shares in the public market and not selling any of the shares they receive as part of their compensation. Company insiders would not be buying the stock if they thought there was any likelihood of a dividend cut.
Revenues fell by 21%, and Adjusted Funds From Operations (AFFO) fell by two-thirds mainly because of the new power contract at Capstone's Cardinal facility offset by newly commissioned wind farms. The company maintained its full year forecast. AFFO is important because it is management's estimate of how much money they have available to pay dividends.
In 2013, before the agreement was signed, I made some estimates about its effect on 2015 AFFO.
The actual contract was essentially in line with my lowest estimate, which I predicted would result in a 2015 approximately C$21 million AFFO. First quarter AFFO was C$6.5 million, easily on track to exceed my low prediction, especially with the addition of theGoulais Wind Farm which was commissioned in May and will be contributing to results for the rest of the year.
At the current rate, 2015 dividends are likely to be a little above AFFO, but I expect the dividend to be maintained, despite the fact that the market seems to be pricing in a dividend cut. (The current dividend yield is 9.6 percent, many analysts feel that anything above 8% indicates expectations for a cut.)
I believe a cut is unlikely for several reasons, starting with company insider's confidence in the stock. Management has repeatedly said that they intend to maintain the dividend, and they have been buying shares in the public market and not selling any of the shares they receive as part of their compensation. Company insiders would not be buying the stock if they thought there was any likelihood of a dividend cut.
Second, while 2015 AFFO could easily fall below dividends paid, there
are many reasons to expect that 2016 will be a much better year.
Capstones' development projects will continue to add incremental AFFO,
and more importantly, two more of Ontario's nuclear reactors will begin
refurbishment next year. This this will reduce overall electricity
supply and likely lead to periods of higher electricity prices and
increased profits at Cardinal. These increased profits will provide
extra AFFO to maintain the dividend as Capstone's development projects
are commissioned and increase long run AFFO.
12/31/2014 Price: C$13.48. Annual Dividend: C$0.62. Low Target: C$10. High Target: C$20.
5/29/2015 Price: C$15.60. YTD Dividend: C$0.25 YTD Total C$ Return: 17.6%. YTD Total US$ Return: 9.6%.
5/29/2015 Price: C$15.60. YTD Dividend: C$0.25 YTD Total C$ Return: 17.6%. YTD Total US$ Return: 9.6%.
Leading North American bus manufacturer New Flyer also suffered from
increasing Canadian interest rate expectations, but these were more than
offset when the company announced a surprise dividend increase in
conjunction with its first quarter results.
As I'd previously discussed, I was expecting a dividend increase towards the end of the year. From the discussion in the conference call,
I get the impression that this will likely be the first of many
dividend increases in coming years. New Flyer's CEO, Paul Soubry,
stated "We are not going to disclose our exact formulas and
methodologies, but I can tell you that we are now in a methodology of a
regular review" of the dividend. This means that as long as the
company's financial performance continues to improve, some of that
improvement will flow through to shareholders in the form of increased
dividends.
Investors tend to value growing dividends highly, often much more
highly than stable dividends. If I am right that his is just the first
of many dividend increases, I would expect New Flyer's stock to increase
even more rapidly than the dividend.
6. Accell Group (XAMS:ACCEL, OTC:ACGPF).
12/31/2014 Price: €13.60. Annual Dividend: €0.61. Low Target: €12. High Target: €20.
5/29/2015 Price: €16.66. YTD Dividend: €0.61 YTD Total € Return: 27.0%. YTD Total US$ Return: 14.5%.
12/31/2014 Price: €13.60. Annual Dividend: €0.61. Low Target: €12. High Target: €20.
5/29/2015 Price: €16.66. YTD Dividend: €0.61 YTD Total € Return: 27.0%. YTD Total US$ Return: 14.5%.
Bicycle manufacturer Accell Group did not report any significant news in May, although there was an interesting article about Accell's leadership in the new and growing category of speed e-bikes in its home country of the Netherlands.
Value Stocks
12/31/2014 Price: $13.02. Annual Dividend: $0.24. Beta 0.36. Low Target: $10. High Target: $20.
5/29/2015 Price: $12.00 YTD Dividend: $0.06. YTD Total Return: -7.4%.
Ethanol producers are again up in arms about proposed cuts to biofuels mandates
in the EPA's proposed 2014-2016 targets, but renewable diesel producers
such as FutureFuel would be "reasonably OK with it," according to Jim
Lane, publisher of Biofuels Digest. Given how bad the EPA's track record over the last couple years has been, that's a ringing endorsement.
FutureFuel has not released a statement on the proposal, but Renewable Energy Group'sstatement gives
some insight. "We are positive about today’s EPA announcement related
to proposed biomass-based diesel volumes for 2014-2017 and overall
advanced biofuels for 2014-2016. This proposal reduces uncertainty and
points towards continuing growth for the near future and beyond. ...
This is a significant improvement over the original 1.28 billion gallon
2014 [biomass-based diesel] proposal."
The news came out on Friday, and FutureFuel and a more pure-play biodiesel producer, Renewable Energy Group (NASD:REGI)
I also follow were both up on the news, by 3 percent and 4 percent. I
expect them to climb further next week as the market digests the news.
8. Power REIT (NYSE:PW).
12/31/2014 Price: $8.35. Annual Dividend: $0. Beta: 0.52. Low Target: $5. High Target: $20.
5/29/2015 Price: $5.03. YTD Total Return: -39.8%.
Solar and rail Real Estate Investment Trust Power REIT's stock
continued to decline in the wake of the negative summary judgement I
wrote about last month. This decline was partly due to the fact that
the few outstanding issues in the case were not resolved, and so the
case will go to trial in August.
Most of the legal work on both sides has already been done, so I don't expect legal expenses to balloon again, and I expect that, even if Power REIT appeals the ruling, it will only do so if expenses can be contained. Hence I maintain my expectation that the dividend will be resumed before the end of 2016, and think the stock will again be a good buy if it falls substantially below $5.
Most of the legal work on both sides has already been done, so I don't expect legal expenses to balloon again, and I expect that, even if Power REIT appeals the ruling, it will only do so if expenses can be contained. Hence I maintain my expectation that the dividend will be resumed before the end of 2016, and think the stock will again be a good buy if it falls substantially below $5.
9. Ameresco, Inc. (NASD:AMRC).
12/31/2014 Price: $7.00. Annual Dividend: $0. Beta: 1.36. Low Target: $6. High Target: $16.
5/29/2015 Price: $7.26. YTD Total Return: 3.7%.
Energy service contractor Ameresco released strong first quarter
earnings, again beating analyst estimates for the third quarter in a
row. The company continues to see recovery, especially in the Federal
market. Ameresco is also reducing its risk profile by developing
renewable assets which it keeps on its books. The resulting
depreciation reduces income in the short term, but leads to long term
stable income streams.
These positive developments have not yet drawn significant investor
attention and the stock price remains low. Company insiders, on the
other hand, are taking advantage by continuing to add to their
positions. Four different insiders have bought a total of 265,000
shares over the last three months.
Growth Stock
10. MiX Telematics Limited (NASD:MIXT).
12/31/2014 Price: $6.50. Annual Dividend: $0. Beta: 0.78. Low Target: $5. High Target: $20.
5/29/2015 Price: $7.70. YTD Dividend: $0. YTD Total South African Rand Return: 27.0%. YTD Total US$ Return: 18.5%.
Vehicle and fleet management software-as-a-service provider MiX
Telematics also announced quarterly results on Thursday, as well as
annual results for its fiscal year, which ends on March 31st. The
company resoundingly beat the consensus earnings estimate (14¢ vs. 7¢
per share) and was very upbeat about its opportunities in the North
American market.
The stock has rallied strongly since the announcement, but given its massive undervaluation, I think there is still plenty of room to the upside.
Predictions for June
Last month, I thought TransAlta Renewables and MiX Telematics had the best chance of short term gains. TransAlta's dividend increase produced only a small (2 percent) advance in Canadian dollar terms, but this was wiped out by the strong US dollar, leading to a small loss of 1.2% since last month. MiX's strong earnings, on the other hand, helped to push its stock up 12.3 percent in terms of the South African Rand, which was reduced to 10 percent for US investors because of the strong dollar.
So my perfect track record of predicting five out of five monthly winners in previous updates was broken by TransAlta's slight decline. The record is now 6 out of 7. But given that MiX's advance was much larger than TransAlta's decline, I'm happy with the result and willing to stick my neck out again.
I don't expect much news as we move into the slow summer months, so price moves should be driven mostly by valuation. I'm quite bullish on all four of TransAlta, Capstone, FutureFuel, and MiX right now, but given MiX's recent advance, I think that it may give back some gains in the short term. Hence I'm going to limit my prediction for June advances to just the first three: TRSWF, MCQPF, and FF.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI. I am the co-manager of the GAGEIP strategy.
The stock has rallied strongly since the announcement, but given its massive undervaluation, I think there is still plenty of room to the upside.
Predictions for June
Last month, I thought TransAlta Renewables and MiX Telematics had the best chance of short term gains. TransAlta's dividend increase produced only a small (2 percent) advance in Canadian dollar terms, but this was wiped out by the strong US dollar, leading to a small loss of 1.2% since last month. MiX's strong earnings, on the other hand, helped to push its stock up 12.3 percent in terms of the South African Rand, which was reduced to 10 percent for US investors because of the strong dollar.
So my perfect track record of predicting five out of five monthly winners in previous updates was broken by TransAlta's slight decline. The record is now 6 out of 7. But given that MiX's advance was much larger than TransAlta's decline, I'm happy with the result and willing to stick my neck out again.
I don't expect much news as we move into the slow summer months, so price moves should be driven mostly by valuation. I'm quite bullish on all four of TransAlta, Capstone, FutureFuel, and MiX right now, but given MiX's recent advance, I think that it may give back some gains in the short term. Hence I'm going to limit my prediction for June advances to just the first three: TRSWF, MCQPF, and FF.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF, REGI. I am the co-manager of the GAGEIP strategy.
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.
http://www.renewableenergyworld.com/articles/2015/06/may-dividends-rise-ten-clean-energy-stocks-for-2015.html