Tom Konrad CFA
Clean energy investing is not on for growth investors, traders, and speculators. Conservative income investors can invest in green companies as well, and dividend paying energy efficiency stocks deserve pride of place in their portfolios.
In my clean energy investing workshops, I tell attendees that investing in clean energy stocks does not have to be riskier than investing in any other sector. The key to investing in clean energy with a low risk profile is the same as low risk investing in any other sector: find stable, profitable companies selling at reasonable valuations.
Identifying stable, profitable companies is not always easy. Even if a company is profitable today, rising competition, the falling price of alternatives, or changing technology can rapidly undermine business models and profits. A rapidly changing legal, regulatory, and cultural landscape further complicates the search. All of these factors apply in clean energy, but much more in rapidly evolving technology and incentive driven sectors such as solar PV and cellulosic ethanol than in more staid sectors such as energy efficiency and conservation.
The Economics of Energy Efficiency
Energy efficiency stocks lack the sex appeal of solar stocks or smart grid stocks, but that very dowdiness makes them much more stable than most other alternative energy sectors. Further, unlike most renewable energy, much energy efficiency makes economic sense without incentives, so the companies are less dependent on the government to drive sales. If Google (GOOG) had chosen to make energy efficiency cheaper than coal (“EE<C”), rather than renewable energy cheaper than coal (RE<C) they’d have been done before they started.
One reason firms pay dividends is because it’s a way to signal to investors that management is confident about their ability to pay that level of dividend far into the future. Dividend cuts are embarrassing to management, and even worse for a company’s stock price, so companies that pay dividends tend to believe that they will be able to remain profitable and keep on paying that dividend.
Safer Clean Energy Stocks
Given this, dividend paying energy efficiency stocks are a great place to start when looking for relatively stable clean energy investments. The list that follows is simply a result of me going through our list of energy efficiency stocks and pulling out the ones that pay a dividend. I plan to look more deeply into many of these companies in future articles.
|Company (Ticker)||Yield*||notes / articles|
|Aixtron AG (AIXG)||0.3%||LEDs|
|Cabot Corp (CBT)||1.8%||green building|
|Eaga PLC (EAGA.L)||5.0%**||UK residential energy efficiency|
|General Electric (GE)||2.8%||A little of everything|
|Honeywell (HON)||2.2%||HVAC, building controls|
|Johnson Controls (JCI)||1.6%||Building controls|
|Kingspan Group, PLC (KGSPF.PK)||0.6%**||Green Building|
|Linear Technology Corp. (LLTC)||2.7%||Efficient power conversion|
|Neo-Neon Holdings (1868.hk)||1.5%**||LEDs|
|PFB Corporation (PFB.TO)||5.0%||Green Building / PFB Corporation|
|Power Integrations (POWI)||0.5%||Power conversion / Power Integrations|
|Waterfurance Renewable Energy (WFI.TO)||3.5%||Geothermal Heat Pumps|
*The dividend rates were as of January 28, 2010, and may have changed due to changes in the stock price or dividend policy since then.
**These London and Hong Kong listed companies follow the European practice of declaring a final and interim dividend that varies much more than the typical US-based dividend, so the dividend may be less of an indicator of earnings stability.
If you know of any dividend paying efficiency stocks I’ve missed, please let me know in a comment.
DISCLOSURE: Long PFB.TO, WFI.TO
DISCLAIMER: The information an
d trades provided here and in the comments are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.