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Wednesday’s TSX breakouts: A stock yielding 7% that has increased its dividend for 14 consecutive quarters

On today's TSX Breakouts report, there are 18 stocks on the positive breakouts list (stocks with positive price momentum), and 38 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a company that offers investors an attractive dividend yield of 7 per cent. Historically, the share price has come under pressure during the fourth quarter. If history repeats itself and the stock price retreats, this could offer investors an attractive entry point. This is a stock to watch. The stock discussed today is Pattern Energy Group Inc. (PEGI-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

San Francisco-based Pattern Energy Group is an independent power company with interests in 20 wind power projects located in the United States, Canada, and Chile. The company's projects, 92 per cent of the power generated, are contracted under long-term power sale agreements that have a weighted average remaining contract length of roughly 14.5 years, providing the company with stable and predictable cash flows.

A key objective held by management is to reach total owned capacity of 5,000 MW by the end of 2020, up from its current capacity of 2,736 MW. In terms of future growth opportunities, management is looking to potentially expand into Japan and Mexico.

Before the market opened on Aug. 8, the company reported its second quarter financial results. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $91.9-million (U.S.), just shy of the Street's expectations of $93.5-million (U.S.). Cash available for distribution (CAFD) was $49.2-million (U.S.), up 39 per cent year-over-year. Management targets 2017 CAFD to be between $140-million (U.S.) and $165-million (U.S.).

The company has a co-investment relationship with the Public Sector Pension Investment Board (PSP Investments) under which PSP Investments will co-invest up to $500-million in projects purchased by Pattern Energy. Based out of Ottawa, PSP Investments is one of Canada's largest pension investment manager. PSP holds a 9.9 per cent interest in the company.

The company is incorporated in the U.S., and is dual listed, trading on both the Toronto Stock Exchange as well as on the Nasdaq under the same ticker, PEGI. The shares are thinly traded on the Toronto Stock Exchange with the three-month historical daily average trading volume of approximately 20,000 shares, compared to over 700,000 shares traded on the Nasdaq.

Dividend policy

The company pays its shareholders a quarterly dividend of 42 cents (U.S.) per share, or $1.68 cents (U.S.) on a yearly basis. This equates to an annualized dividend yield of approximately 7 per cent. Management has announced a dividend increase every single quarter since 2014. Dividend growth has moderated over time.

Analysts' recommendations

Since the beginning of August, 10 analysts have issued research reports on the company of which eight reports contained buy recommendations and two reports (from Goldman Sachs and Industrial Alliance Securities) had hold recommendations.

The 10 firms that issued research reports on the company after the release of its second quarter financial results are as follows in alphabetical order: BMO Capital Markets, Desjardins Securities, Goldman Sachs, Guggenheim Securities, Industrial Alliance Securities, National Bank Financial, Opppenheimer & Co., Raymond James, RBC Capital Markets, and Wells Fargo Securities.

Financial forecasts

(All financial figures are expressed in U.S. dollars.)

The consensus EBITDA estimate is $363-million in 2017, rising 15 per cent to $419-million in 2018.

Earnings estimates have been relatively stable over recent months with slightly lower expectations for this year. For instance, three months ago, the Street was forecasting EBITDA of $368-million for 2017 and $419-million for 2018.

Valuation

Analysts commonly value the stock on an enterprise value-to-EBITDA basis based on 2018 estimates.

According to Bloomberg, the one-year consensus target price is $26.92 (U.S.), suggesting there is over 11 per cent upside in the share price over the next 12 months.

Revised recommendations

Earlier this month, two analysts revised their target prices, one with an upward revision and the other with a downward revision. All target prices are expressed in U.S. dollars.

Colin Rusch, the analyst from Oppenheimer, increased his target price to $30 from $28. Taking an opposing approach, Brian Lee from Goldman Sachs reduced his target price by $1 to $23.

Insider transactions

This month, three management executives have sold shares in the market.

According to Bloomberg, on Aug. 14, Daniel Elkort, executive vice-president and general counsel, sold 4,100 shares at an average price of approximately $24.08 per share. Prior to that, on Aug. 1, two insiders were sellers. Esben Pedersen, chief investment officer, sold 1,200 shares at an average price of approximately $25.18 per share and Christopher Shugart, the senior vice-president of operations, divested 500 shares.

Chart watch

Year-to-date, this utility stock has seen its share price rally by an impressive 20 per cent.

The share price may retreat in the near-term. Looking back over the past two years, the share price has traded largely between $24 (Cdn.) and $32 (Cdn.) and is currently approaching the upper end of this trading band. Furthermore, over the past three years, the stock price has fallen during the fourth quarter. If history repeats itself, a pullback could be on the way and this may present investors with a more attractive entry point. This is a stock to watch.

In terms of key support and resistance levels, there is initial downside support around $30. Failing that, there is support around $28, close to its 200-day moving average (at $28.32), and then near $25. The stock has initial overhead resistance around $33.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

If you want to receive an automatic link to all reports that I write, follow me on Twitter at @jennifer_dowty

Positive BreakoutsAug. 15 close
ACQ-TAutoCanada Inc $22.42
AVO-TAvigilon Corp $16.50
BDT-TBird Construction Inc $9.35
CFX-TCanfor Pulp Products Inc $12.93
CHE.UN-TChemtrade Logistics Income Fund $18.50
CCA-TCogeco Communications Inc $92.22
CGO-TCogeco Inc $79.22
DSG-TDescartes Systems Group Inc $34.26
D.UN-TDream Office REIT $20.45
FSZ-TFiera Capital Corp $14.84
HWD-THardwoods Distribution Inc $19.85
KL-TKirkland Lake Gold Inc $13.51
NPI-TNorthland Power Inc $24.26
NVU.UN-TNorthview Apartment REIT $22.89
PBL-TPollard Banknote Ltd. $12.39
PG-TPremier Gold Mines Ltd $3.48
PBH-TPremium Brands Holdings Corp $99.63
SJ-TStella-Jones Inc $45.70
Negative Breakouts
AAV-TAdvantage Oil & Gas Ltd $8.01
ALA-TAltaGas Ltd $27.82
ARX-TARC Resources Ltd $15.76
BDI-TBlack Diamond Group Ltd $1.59
CGX-TCineplex Inc $41.99
KWH.UN-TCrius Energy Trust $8.52
DRT-TDIRTT Environmental Solutions $5.28
DII/B-TDorel Industries Inc $30.90
ENF-TEnbridge Income Fund Holdings Inc $31.39
EFX-TEnerflex Ltd $15.74
XTC-TExco Technologies Ltd $10.21
GMP-TGMP Capital Inc $2.25
GSY-Tgoeasy Ltd $26.26
GXO-TGranite Oil Corp $3.58
HLF-THigh Liner Foods Inc $14.50
HNL-THorizon North Logistics Inc $1.20
IPL-TInter Pipeline Ltd $23.12
ITP-TIntertape Polymer Group Inc $20.15
KEY-TKeyera Corp $35.71
LUC-TLucara Diamond Corp $2.60
PXT-TParex Resources Inc $13.21
PKI-TParkland Fuel Corp $25.48
PPL-TPembina Pipeline Corp $40.11
PGF-TPengrowth Energy Corp $0.73
PD-TPrecision Drilling Corp $3.53
PVG-TPretium Resources Inc $10.15
P-TPrimero Mining Corp $0.13
RRX-TRaging River Exploration Inc $6.53
SES-TSecure Energy Services Inc $7.59
SCL-TShawCor Ltd $25.15
SW-TSierra Wireless Inc $28.69
SVI-TStorageVault Canada Inc. $2.21
TGZ-TTeranga Gold Corp $2.86
X-TTMX Group Ltd $65.33
TXG-TTorex Gold Resources Inc $18.85
VSN-TVeresen Inc $17.46
WJX-TWajax Corp $19.78
XDC-TXtreme Drilling & Coil Services Corp $1.80

Source: Bloomberg

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