Tom Konrad CFA
If you want to green your portfolio, but the wild swings of First Solar (NASD:FSLR), Tesla (NASD:TSLA), SolarCity (NASD:SCTY), and even clean energy ETFs like Powershares Wilderhill Clean Energy (NYSE:PBW) are a bit too much to let you sleep at night, you’re not alone.
A reader recently suggested I write about more green stocks like Waste Management (NYSE:WM), which readers can own and not worry about too much. I thought it was an excellent suggestion; I’ve recently been writing much more about much more exciting or terrifying stocks, because there is simply a lot more to say about them. But such stocks should not be anyone’s whole portfolio, not even most of it.
Unfortunately, articles about stocks that will let investors sleep at night run the risk of putting readers to sleep.
On the flip side, none of us want to spend much time worrying about the safety of our portfolios, and I think it’s a good policy to build a green stock portfolio around large positions in boring, dividend paying stocks that may not ever produce spectacular returns, but which also are unlikely to go bankrupt or plummet if they miss a quarterly earnings estimate.
Below are three such stocks which I have not been writing about much, but they are still good dividend payers, and all are significant holdings in my green stock portfolios.
Brookfield Renewable Energy Partners
Ticker(s): NYSE:BEP, TSX:BEP.UN
Recent Price: $27.42
Quarterly Dividend (Annual Yield): $0.3625 (5.3%)
Business: Brookfield Renewable is one of the largest listed pure-play renewable power platforms globally, and is Brookfield Asset Management’s (NYSE:BAM) primary vehicle through which acquires renewable power assets on a global basis. Formerly listed only on the Toronto Stock Exchange as TSX:BEP.UN, BEP began trading on the New York Stock exchange on June 11th. The partnership’s portfolio consists of hydroelectric and wind power assets with more than 5,800 MW of installed capacity.
Why you can sleep at night: As long as people need electricity, the rain falls, and the wind blows, BEP’s geographically diversified portfolio will generate electricity and income for the fund’s limited partners.
Algonquin Power and Utilities
Ticker(s): TSX:AQN, OTC:AQUNF
Recent Price: C$7.20
Quarterly Dividend (Annual Yield): C$0.085 (4.7%)
Business: Algonquin Power & Utilities Corp. owns and operates a diversified portfolio of $3 billion of regulated water, electricity, and natural gas utilities and and non-regulated renewable energy, natural gas, and waste to energy generation and co-generation in the US and Canada. Algonquin also develops renewable power and clean energy projects.
Why you can sleep at night: Utilities in developed markets are a traditional haven for conservative investors, and add diversification to the only-slightly-less stable income from its sales of electricity under long term power purchase agreements. Algonquin has the financial strength to fund its renewable energy project developments, which provide earnings and dividend growth for shareholders.
Hannon Armstrong Sustainable Infrastructure
Recent Price: $11.76
Quarterly Dividend (Annual Yield): Current $0; 2014 expected $0.21 to $0.27 (7.1% to 9.2%)
Business: Hannon Armstrong Sustainable Infrastructure Capital, Inc. provides debt and equity financing focusing on energy efficiency, clean energy, and infrastructure projects. The company provides financing services for solar, wind, geothermal, biomass, natural gas, water, communications infrastructure, and energy efficiency projects. It also offers mergers and acquisitions, tax equity advisory, corporate finance, and merchant banking services. The company recently went public as a REIT, raising funds which will be invested in the same sustainable infrastructure projects which it has historically provided financing for via securitization.
Why you can sleep at night: Although HASI’s track record does not include the investments it is currently making with the funds from its IPO, it does have a long track record of managing such investments for institutional investors like pension funds. The simplicity of these investments allows me and other analysts to gain a fairly reliable estimate of the income such investments will produce. Since HASI is a REIT, managment intends to return all of this income to investors in the form of dividends. The $0.21 to $0.27 quarterly dividend estimate I used above is the current range of analysts’ estimates.
Even if the dividend comes in well below the expected range at $0.18 a share, we will still have a REIT with a 6.1% yield at the current price, making HASI a very safe investment despite the uncertainty. If earnings are in-line with analyst expectations, I would expect the stock to appreciate 20% to 50% to bring the yield in line with similar REITs. The combination of expected safe income and a high chance of significant price appreciation convinced me to make HASI the largest holding in my managed portfolios.
Since company insiders have been buying the stock (which is very unusual following an IPO,) I’m fairly confident that they are also betting on significant price appreciation. Most recently, Hannon’s CEO Jeffrey Eckel bought 18,090 shares at $11.48 and $11. I have an interview with him this Wednesday (6/26) at REFF Wall Street. I invite you to use the comments here to suggest questions.
It may not be easy being green if the onl
y stocks you look at are hot solar and electric vehicle plays. But if you are interested in investing in renewable energy and energy efficiency infrastructure, it’s easy to combine significant income and relative safety with greenery.
DICLOSURE: Long WM, BEP, AQN, HASI
An earlier version of this article appeared on the author’s Forbes blog on June 13th.
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.