By Harris Roen
There is a new and growing interest in the world of alternative energy investing, the search for high-quality dividend yield among green investments. To this end, the Roen Financial Report has created a Green Dividend Yield Portfolio, a select group of high-yield alternative energy stocks. Together, this selection of companies can produce a steady stream of income for the alternative energy investor. [Ed. note: The Roen Financial report uses a data provider that does not cover Canadian stocks. These include many of the highest yielding green stocks. The potential for global high yield green investing is even greater than discussed in this article. That data provider also missed the fact that PW has suspended its dividend, which is why the stock is included in the second graph.]
A New Source for Dividend Yield
The Green Dividend Yield Portfolio is a collection of high-yield stocks that are in the alternative energy business. Companies that fall in the “sweet-spot” of dividend yield are included, which I consider to be between 3.5% and 7.0% yield. Anything lower and the yield is not meaningful enough to be of interest, anything higher and the risks are just too great. By having a range of yields from a variety of alternative energy stocks in this sweet spot, a significant yield can be achieved with reduced risk to stock price fluctuation. Subscribers to the Roen Financial Report get access to a list of all companies in the Green Dividend Yield Portfolio along with their ranks, dividend quality rating, exclusive company reports and monthly updates.
The 15 companies currently in the Green Dividend Yield Portfolio have yields ranging from 3.5% to 6.2%. The average yield of the Green Dividend Yield Portfolio is 4.4%, which is a better than going all the way out to the 30 year U.S.Treaury. Even for lower investment grade corporate bonds (A rated), an investor would need to go to 10 years to get an equivalent yield.
Ranked Dividend Yield Stocks
Alternative energy companies in the Green Dividend Yield Portfolio are evaluated on many criteria important in determining the quality of dividend yield that a company puts out. These include dividend growth, earnings per share, free cash flow, return on equity and yield to debt risk. Companies are then compared to each other and given a dividend quality rank of 1 to 5, with 1 being the highest. This ranking gives dividend yield investors a simple yet powerful way to gauge the likelihood that a stock will be able to offer consistent or growing yields into the future.
Dividend Yield Quality
The top 25 yielding alternative energy companies that the Roen Financial Report tracks are shown in the graph. Stocks determined to have higher quality yield are on the left, and those with lower quality yield are on the right. Though it is not a perfect fit, the stocks do graph along a clear trend line. A statistical way to determine the validity of a trend line is to look at its R2 value. This trend line has an R2 value of 0.4, which implies a significant correlation.
For many investors, owning a diversified basket of high-yield stocks is a very good strategy as part of a well-balanced portfolio. As a word of caution, though, there are dangers to weighting a portfolio too heavily in high dividend yield stocks. This is especially true in a rising interest rate environment, so be aware of the risks. Having said that, owning a collection of these high-yield alternative energy stocks can be a very attractive way to add income to a green investor’s portfolio.
About the author
Harris Roen is Editor of the “ROEN FINANCIAL REPORT” by Swiftwood Press LLC, 82 Church Street, Suite 303, Burlington, VT 05401. © Copyright 2010 Swiftwood Press LLC. All rights reserved; reprinting by permission only. For reprints please contact us at firstname.lastname@example.org. POSTMASTER: Send address changes to Roen Financial Report, 82 Church Street, Suite 303, Burlington, VT 05401. Application to Mail at Periodicals Postage Prices is Pending at Burlington VT and additional Mailing offices.
Remember to always consult with your investment professional before making important financial decisions.