Tom Konrad Ph.D., CFA
Income focused Yieldcos have been particularly badly hit, but my income heavy Ten Clean Energy Stocks for 2015 model portfolio has done quite well in spite of this. I attribute this resilience to my emphasis on current dividend income, rather than the dividend plus double-digit growth that many Yieldcos were promising before the collapse in their stock prices rendered the growth impossible.
It now seems increasingly likely that we have seen the bottom for Yieldcos. I first shared this opinion in an interview on October 14th, and followed it up in more detail in an article last week. Clean energy stocks and the market in general seem to be following a similar, if less drastic pattern.
By the numbers, the model portfolio was up 11.0% for October, and 3.0% for the year to October 31st. Its benchmark (a 60/40 blend of YLCO and PBW) was up 10.3% for the month but is still down 23.9% for the year to date.
The six stock income subportfolio was up 5.8% in October and 12.5% year to date, compared to the Global X YieldCo Index ETF (NASD:YLCO), which recovered 10.5% in October, but remains down 29.5% year to date. The Green Global Equity Income Portfolio which I manage gained 5.3% for the month and is up 6.6% for the year.
The four stock value and growth portfolio had a stellar month, up 18.9% in October but still down 11.3% year to date. However, this portfolio is now outperforming its benchmark, the Powershares Wilderhill Clean Energy ETF (NASD: PBW), which gained 9.9% for the month but is down 15.4% year to date.
Individual Stock Returns and Highlights
The chart below (click for larger version) gives details of individual stock performance, followed by a discussion of the month's news for each stock.
The low and high targets given below are my estimates of the range within which I expected each stock to finish 2015 when I compiled the list at the end of 2014.
1. Hannon Armstrong
Sustainable Infrastructure (NYSE:HASI).
12/31/2014 Price: $14.23. Annual Dividend: $1.04. Beta: 0.81. Low Target: $13.50. High Target: $17.
10/31/15 Price: $18.01. YTD Dividend: $0.78 YTD Total Return: 32.0%.
Alone among Yieldcos, sustainable infrastructure
financier and Real Estate Investment Trust Hannon Armstrong
retains access to the equity markets, a fact which it demonstrated
with a secondary offering of 5 million shares at a price of
$18. The secondary offering and decline of the Yieldco
sector knocked the price down a bit (if not nearly as much as
other Yieldcos.) As I wrote in the June
1st update, I was taking some profits when HASI was over
$20, but I am holding on to my still very large position at
Although the secondary offering knocked the price down, the
offering was not dilutive to current shareholders when viewed
through the lens of invested capital per share. As I
mentioned in a comment
on Seeking Alpha last week, Hannon Armstrong had approximately
$11.87 of capital to invest per share before the offering, and
$12.57 of capital per share to invest after the offering. So
the offering should increase HASI's capacity to pay per share
dividends by approximately 6%. At the end of last year, HASI
declared a $0.26 per share quarterly dividend generated by
approximately $10.91 of invested capital. If the company is
as effective investing the new capital from the two secondary
offerings since then, it should be able to declare a quarterly
dividend of $0.30 per share for the coming year.
At the current price of $18.01, that translates to a 6.7% annual
Cable Corp. (NYSE:BGC)
12/31/2014 Price: $14.90. Annual Dividend: $0.72. Beta: 1.54. Low Target: $10. High Target: $30.
10/31/15 Price: $15.39. YTD Dividend: $0.36 YTD Total Return: 5.7%.
International manufacturer of electrical and fiber optic cable
General Cable Corp.
reported that MM Logistics (MML) had failed to close on the
second part of its purchase of BGC's Asian operations. The
first step netted the company $88 million for BGC's Thai
operations. General Cable believes that MML did not have the
right to terminate the Purchase Agreement under the contract, and
is "considering all of its options against MML under the Purchase
Agreement, at law and in equity."
Despite this news, the stock rallied strongly in October, perhaps
because it had simply become extremely undervalued at the end of
Renewables Inc. (TSX:RNW,
12/31/2014 Price: C$11.48. Annual Dividend: C$0.84. Low Target: C$10. High Target: C$15.
10/31/15 Price: C$10.10. YTD Dividend: C$0.671 YTD Total C$ Return: -6.2%. YTD Total US$ Return: -16.8%.
Yieldco TransAlta Renewables reported third quarter results in
line with the company's previous guidance. Weak winds in
Eastern Canada were offset by strong hydropower and wind
production in the west. Despite this, the stock has
continued its slow decline, perhaps because other Yieldcos (which
have fallen much further) have become relatively more attractive.
Capstone Infrastructure Corp (TSX:CSE.
12/31/2014 Price: C$3.20. Annual Dividend C$0.30. Low Target: C$3. High Target: C$5.
10/31/15 Price: C$3.20. YTD Dividend: C$0.225 YTD Total C$ Return: 7.0%. YTD Total US$ Return: -5.1%.
New Flyer Industries (TSX:NFI, OTC:NFYEF).
12/31/2014 Price: C$13.48. Annual
Dividend: C$0.62. Low Target: C$10. High
10/31/15 Price: C$18.96. YTD Dividend: C$0.505 YTD Total C$ Return: 44.4%. YTD Total US$ Return: 28.1%.
Leading North American bus manufacturer New Flyer again announced
strong orders and backlog for the third quarter, and received
162 new orders for every 100 buses delivered over the last twelve
months. The backlog is now sufficient for the company to
maintain its current production levels through the end of
2016. Multiple analysts increased their price targets for
the stock in response.
Although I still consider the stock attractive, I trimmed my
position (most of which was
acquired in 2012 at a fraction of the current price) over
the last two months to free up capital to invest in what I believe
to be some very attractively priced Yieldcos such as Terraform
and Abengoa Yield (ABY).
12/31/2014 Price: €13.60. Annual Dividend: €0.61. Low Target: €12. High Target: €20.
10/31/15 Price: €18.96. YTD Dividend: €0.61 YTD Total € Return: 43.9%. YTD Total US$ Return: 30.9%.
European bicycle manufacturer Accell Group continues to benefit
from its leadership position in the rapidly
growing electric bike market. Like New Flyer, I
continue to like the stock and its future growth prospects, but I
took some gains to reinvest in undervalued Yieldcos.
Biodiesel and specialty chemicals producer FutureFuel renegotiated its previously terminated contract to supply a bleach activator to Proctor and Gamble. Analysts at Roth Capital believe that the new contract will allow FutureFuel to sell the formerly proprietary product to third parties, and believe that such sales will offset the decline in sales to P&G. The stock jumped from around $10 when the deal was announced to above $15 today.
Energy service contractors Ameresco has been recovering from its
previous low at the end of August, but I feel it remains
significantly undervalued. The company continues to sign
large contracts, and has recently received upgrades from analysts
at Oppenheimer and Northland Securities.
10. MiX Telematics
12/31/2014 Price: $6.50. Annual Dividend: ZAR 0.08 or $0.15 Beta: 0.78. Low Target: $5. High Target: $20.
10/31/15 Price: $5.63. YTD Dividend: $0.186 YTD Total South African Rand Return: 6.5%. YTD Total US$ Return: -11.1%.
Clean energy stocks and especially Yieldcos seem to be recovering from a bottom at the end of September. Most Yieldcos remain at very attractive valuations, and so I expect their slow recovery to continue, especially since the prospects of more than token rate hikes from monetary authorities seem to be fading. The weaker economic prospects which have been delaying rate hikes may take the wind out of the rally of many stocks, but income stocks such as Yieldcos and the first six on this list should benefit from continued low interest rates.
Disclosure: Long HASI, CSE/MCQPF, ACCEL/ACGPF, NFI/NFYEF, AMRC, MIXT, PW, PW-PA, FF, BGC, RNW/TRSWF. I am the manager of the GGEIP strategy.
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.