Tom Konrad CFA
May was a tough month for most clean energy stocks, even though the
broad market was up slightly, but my Ten
Clean Energy Stocks for 2016
model portfolio continued to
out-perform, mostly because of strong earnings for several
stocks. The model portfolio was up 3.1% for the month and 3.8%
for the year to date, even though its clean energy benchmark fell
2.0%, for a decline of 2.8% for the year through May 31st. The
broad market of small cap stocks also rose, and was up 2.2% for a
total gain of 2.4% for the year to date.
Income and Growth Stocks
Clean energy income stocks continue to outperform growth stocks.
with my income benchmark, YLCO
down only 0.7% for the month compared to a 5.1% decline for my
growth benchmark, PBW
The seven income stocks in the model portfolio posted modest gains
of 1.2%, comfortably ahead of their benchmarks decline, but were put
to shame by the stellar performance of the three growth stocks,
which advanced 7.6%. The Green Global Equity Income Portfolio
(GGEIP), an income-oriented clean energy strategy which I manage,
continued to out-perform as well. It rose 0.8% for the month,
and is up 8.8% for the year to date.
The chart above (larger
) gives detailed performance for the individual
stocks. Significant news driving individual stocks is
Pattern Energy Group
12/31/15 Price: $20.91. Dec 31st Annual Dividend: $1.488
(7.1%). Beta: 1.22. Low Target: $18. High
5/31/16 Price: $21.78. YTD Dividend: $0.671. Expected
2016 Dividend:$1.56 (7.2%) YTD Total Return: 8.1%
At its first quarter conference call, wind Yieldco Pattern
Energy increased its dividend from $0.371 to $0.39. The 2.4%
increase was the ninth consecutive quarterly increase since its
IPO. Wind speeds were lower than average at its farms in the
first quarter because of El Nino, but they have a good chance of
being higher than average towards the end of 2016.
The company has $100 to $150 million in liquidity to acquire
additional projects, and has also put in an "At The Market" (ATM)
facility to raise small amounts of additional equity if the stock
price continues to recover (which it has since the
announcement.) This is part a growing trend of Yieldcos
returning to the capital markets which I believe signals a return to
normalcy. I took an
in-depth look at this trend here
Enviva Partners, LP
12/31/15 Price: $18.15. Dec 31st Annual Dividend:
$1.76 (9.7%). Low Target: $13. High Target: $26.
5/31/16 Price: $22.88. YTD Dividend:
$0.97 Expected 2016 Dividend: $2.10 (9.2%)
YTD Total Return: 31.9%
Wood pellet focused Master Limited Partnership (MLP) and Yieldco
Enviva Partners raised its quarterly dividend from $0.46 to $0.51
per share, keeping it on track to meet its
2016 distribution guidance
of $2.10 per unit for 2016.
That guidance would require $1.13 in distributions in the second
half of the year, which could be accomplished with smaller increases
of only 4 cents in each quarter. I think it's likely that they
will continue with larger increases of 5 or 6 cents and exceed the
guidance. The guidance does not include the effects of further
acquisitions, which are looking increasingly likely as the stock
The demand for wood pellets remains strong and growing.
Enviva's position as the industry leader allows it to continue to
sign take-or-pay contracts with quality utility customers for its
entire capacity. One such potential contract was discussed on
the quarterly conference call with the final deal announced
on June 2nd. Enviva will supply 800,000 metric tons of
wood pellets per year until 2027 to a power plant in the UK.
The plant formerly generated power from coal, but is being converted
to run on wood pellets in order to reduce net carbon emissions.
Plains Partners, LP (NYSE:GPP)
12/31/15 Price: $16.25. Dec 31st Annual
Dividend: $1.60 (9.8%). Low Target: $12. High
5/31/16 Price: $14.40. YTD Dividend:
$0.8075. Expected 2016 Dividend: $1.62 (11.3%) YTD Total
Ethanol production Yieldco Green Plains Partners
continues to recover along with gas prices, but the partnerships
earnings are not as closely linked to gas prices as is the price of
ethanol. It's contracts with its parent, Green Plains (GPRE
insulate it from the ethanol market, so a continued recovery does
not depend on continued increases in oil.
While its parent operated at a loss in the first quarter, the
partnership was able to increase its quarterly distribution to
$0.405 per unit while maintaining a coverage ratio of 102%.
Its parent, Green Plains, rallied strongly in May as projections for
ethanol demand and margins have improved. The improved market
conditions are helping GPP's units as well, but I believe the units
remain very attractively valued.
Yield, A shares (NYSE:NYLD/A)
12/31/15 Price: $13.91. Dec 31st Annual Dividend:
$0.86 (6.2%). Beta: 1.02. Low Target: $11. High
5/31/16 Price: $14.50. YTD Dividend: $0.455.
Expected 2016 Dividend: $0.94 (6.3%) YTD Total Return: -7.8%
NRG Yield (NYLD
also reiterated its dividend growth target of 15% year over year,
which I expect will mean total dividends for 2016 of 94 or 95
cents. Its May dividend of $0.23 was precisely 15% above the
dividend of a year earlier.
The company is also making progress developing internal management,
and appointed Chris Sotos as CEO. Sotos was formerly Head of
Strategy and Mergers and Acquisitions at NYLD's parent, NRG Energy
(NRG), but will now be employed solely by NRG Yield.
Terraform Global (NASD: GLBL)
12/31/15 Price: $5.59. Dec 31st Annual Dividend:
$1.10 (19.7%). Beta: 1.22. Low Target: $4. High
5/31/16 Price: $2.78. YTD
Dividend: $0.275. Expected 2016 Dividend: $0.50 (21%). YTD
Total Return: -44.5%
Information on Yieldco Terraform Global remains scarce as the
company attempts to file its 2015 annual report and first quarter
2016 reports and its former sponsor, SunEdison (SUNE
stumbles through bankruptcy.
The delay of the reports is due to the fact that Terraform Global
relied on its parent for accounting and bookkeeping, and the
parent's financial controls were inadequate. Now the Yieldco
needs to rebuild everything from scratch. The company has
delayed its second quarter dividend, which I do not expect to be
paid until after its financial reports are filed and it can claim to
understand its own financial position. At that point, I expect
the regular dividend to be cut dramatically, with the second quarter
dividend paid in arrears.
Goldman Sachs thinks the dividend will be cut from $1.10 to $0.64
annually, but I'm a little more conservative, and think it will fall
somewhere between $0.40 and $0.75. Other Yieldcos currently
trade with yields in the 6% to 10% range, so if we're very
conservative and expect a $0.40 annual dividend and a 10% yield, the
stock is worth at least $4, or 44% above the current price. If
we use Goldman's dividend estimate of $0.64 and a 10% yield, the
stock price would more than double.
For me, the bottom line on Terraform Global is that there is much we
don't know, but if we focus on the big picture and the little we do
know, we have a stock trading far below its fair value because of
all the uncertainty. Eventually we'll have a better picture of
GLBL's financials, and the stock market seems to be valuing it below
the worst case scenario.
Sustainable Infrastructure (NYSE:HASI)
12/31/15 Price: $18.92. Dec 31st Annual
Dividend: $1.20 (6.3%). Beta: 1.22. Low
Target: $17. High Target: $27.
5/31/16 Price: $20.33. YTD Dividend:
$0.30. Expected 2016 Dividend: $1.25 (6.1%). YTD
Total Return: 9.1%
Clean energy financier and REIT Hannon Armstrong had a
very strong first quarter, with core earnings of $0.32 per share,
a 19% increase on the previous year, and already in excess of the
$0.30 quarterly dividend. My previous estimate for the next
dividend increase in December was 4 cents, to $0.34, but after
this strong quarter, I expect the new dividend will be $0.35 or
Like Pattern discussed above, Hannon Armstrong has put an ATM
facility in place, and has said that it may raise something less
than $200 million in new equity this way. The difference
between core earnings and the dividend will also flow back into
new investments, all of which should contribute to per share
Renewables Inc. (TSX:RNW,
12/31/15 Price: C$10.37. Dec 31st
Annual Dividend: C$0.84 (8.1%). Low Target:
C$10. High Target: C$15.
5/31/16 Price: C$12.86. YTD Dividend:
C$0.293 Expected 2016 Dividend:
C$0.88 (7.1%) YTD Total Return (US$): 33.9%
Canadian listed Yieldco TransAlta Renewables also had a strong
first quarter, and continues on-schedule and on budget with its
South Hedland Project in Australia. The company has signaled
that it will further increase its dividend when the project is
complete in mid-2017.
The company also secured
financing on its 68.7MW New Richmond wind facility which it
will use to finance other projects, most likely including South
Renewable Energy Group
12/31/15 Price: $9.29. Annual Dividend: $0.
Beta: 1.01. Low Target: $7. High Target: $25.
5/31/16 Price: $9.21. YTD Total
Advanced biofuel producer Renewable Energy Group also reported a
strong quarter. The company sold 64% more gallons of biomass
based diesel than during the same period a year ago, although
spreads were thin due to high commodity prices. They have also
been making significant progress expanding their business through
both internal growth ans acquisitions. I expect these
investments to show large benefits as the advanced biofuel and
biodiesel markets recover due to the new climate of regulatory
At the end of the month, REGI sold $125 million of convertible
notes due in 2036, with the proceeds to be used to redeem similar
notes which would have matured in 2019, as well as for stock
buybacks. This caused the market to irrationally sell off
for about a week or so, but it should have a positive effect on
the share price in the long term. I took the opportunity of
the selloff to add to my position.
MiX Telematics Limited
12/31/15 Price: $4.22 / R2.80. Dec
31st Annual Dividend: R0.08 (2.9%). Beta:
-0.13. Low Target: $4. High Target: $15.
5/31/16 Price: $5.03 / R3.10. YTD Dividend:
R0.02/$0.12 Expected 2016 Dividend:
R0.08 (3.6%) YTD Total Return: 20.3%
Software as a service fleet management provider MiX Telematics
shot up on the news that the company would be buying back about
25% of its shares at R2.36 per share using cash on hand.
This should result directly in increased earning per share (EPS)
of approximately 30%. After the sale is finalized and the
effect starts boosting EPS, I expect the stock to continue its
Operationally, the first quarter was also solid and exceeded
market expectations, with year over year subscription growth of
11% despite many of the company's customers in the oil and gas
industry reducing the size of their fleets. I remain
extremely bullish about the company's long term prospects.
Ameresco, Inc. (NASD:AMRC).
Current Price: $6.25. Annual Dividend:
$0. Beta: 1.1. Low Target: $5.
High Target: $15.
5/31/16 Price: $4.68. YTD Total Return: -21.7%
Energy service contractor Ameresco reported a strong first
quarter, with revenue up 16% and rising margins. The
improvement was driven mostly by Federal government projects,
while sales of integrated PV solar systems continued to lag.
The latter was due to the weakness in oil and gas, since many of
these customers are in that sector.
Last month, I wrote that I was beginning to question my faith in
company management. This quarter has helped, but I'd like to
see a few more quarters of strong execution before I put my doubts
completely to rest.
The first quarter was almost uniformly good for my stock
picks. I continue to think Green Plains Partners and Terraform
Global are two of the best values, but recent news has me adding
Renewable Energy Group and MiX Telematics to the mix.
Although MIXT stock was up 23% for the month, it remains greatly
undervalued, especially in light of the expected 30% per share EPS
increase due to the stock buyback. As for REGI, I've been
growing more confident that this stock is set for explosive earnings
growth this year and next.
Disclosure: Long HASI, AMRC, MIXT,, RNW/TRSWF, PEGI, EVA,
GPP, NYLD/A, REGI, GLBL
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