No one likes fossil-fuel stocks right now.
Even at rock-bottom prices, it’s hard to find buyers these days. The S&P/TSX Capped Energy Index, which is almost entirely composed of traditional oil and gas companies, is down about 24 per cent in the past 12 months.
By contrast, the S&P Global Clean Energy Index is up about 33 per cent in the same period. That, in a nutshell, tells you what investors see happening in the future.
There are many green energy and infrastructure companies from which to choose but here’s one that I discovered only recently.
Atlantica Yield PLC (AY-Nasdaq)
Monday’s closing price: US$23.21
Annual payout: US$1.60 (forward 12 months)
Yield: 6.9 per cent
The business: Atlantica Yield is a London-based company that trades on Nasdaq. It owns a diversified portfolio of renewable energy, natural gas, electric transmission, and water assets in North and South America, and certain markets in Europe, the Middle East and Africa. Company assets include 1,496 megawatts of renewable energy generation, 300 MW of efficient natural gas, and 1,854 kilometres of electrical transmission lines.
Why I like it: Let’s start with the yield. The shares currently yield 6.9 per cent, and the company has a history of steadily raising its distributions. In fact, the payout has increased for nine consecutive quarters. The distribution is up 145 per cent from this time three years ago.
This green energy and infrastructure portfolio is well diversified both geographically and in types of assets. The company is steadily increasing its cash available for distribution. Most of its revenue (75 per cent in the first half of this year) is from renewable energy.
Financial highlights: First-half results were profitable, but revenue and earnings were down from the same period last year. Revenue came in at US$504.8-million, down from US$513.1-million the year before. The company said this was primarily owing to the depreciation of the euro against the U.S. dollar. Profit for the first half was just under US$17-million compared with US$67.4-million in 2018. On the positive side, cash available for distribution was US$94.5-million in the six-month period, a 5.3-per-cent increase over the first half of 2018.
The company reported that production in the U.S. solar portfolio in the first half was lower than in the same period of 2018, mostly because of lower solar radiation in the first quarter and scheduled maintenance that took longer than expected.
Risks: Renewable energy can be unpredictable at times, as the shortfall in solar production in the first quarter illustrates. If the sun doesn’t shine and the winds don’t blow, output drops. However, all renewable energy companies are subject to this kind of risk and are learning to cope with it.
This is not a large company. It’s market capitalization of US$2.37-billion puts it in the mid-cap range. The stock can be volatile – trading range over the past 12 months has been between $17.50 and $24.75 a share.
Distribution policy: The stock pays quarterly distributions, with the next one due in December.
Who it’s for: This security is suitable for investors who are looking for U.S. cash flow and want to add more green stocks to their portfolios.
Summing up: The yield makes this an attractive choice for readers looking for socially responsible energy/infrastructure stocks. Consult your financial adviser before you decide.
Full disclosure: The author own shares in Atlantica Yield.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.