Tom Konrad CFA

On Thursday, Veolia Environnement (NYSE:VE) closed a deal to sell its solid waste business for $1.9 billion.  This is part of its ongoing effort to reduce debt and cost of operations by selling assets worth $6.14 billion, which the company expects to complete by the end of 2013.  Last year, Veolia took the first step in this program by selling its UK water business, also for $1.9 billion.

I’ve long been attracted to Veolia for its green credentials and high dividend yield.  The company paid a euro 0.70 ($0.85) dividend in 2012, and will pay the same in 2013, for a yield of 8.2% at the current price of $10.33.  However, the company’s high debt ($23.7 billion after the recent sale, which it plans to reduce to $14.7  billion by the end of 2013 through a combination of asset sales and retained earnings) and negative free cash flow have made me wary.

Debt is still higher than I would like, and free cash flow is still negative, but with the stock trading at a forward P/E of 8 and at less than two thirds of book value, this seems a good time to re-enter this high yielding company before it completes it’s restructuring and attracts more cautious income investors.

I re-purchased Veolia today (I sold a month ago, when the stock was over $12, and the recent asset sale had not yet been announced.)  The company bears watching, since there is no guarantee it will continue divest assets and cut operating costs, but a successful restructuring leading to less debt and positive cash flow will make Veolia into an attractive stock worthy to be among the core of stable green income stocks in my portfolio.

Disclosure Long VE

This article was first published on the author's Forbes.com blog, Green Stocks.

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