There are hundreds of listed companies. For this reason, it is impossible to know each of them. This can cause investors to miss some underestimated opportunities.
We asked some of our energy contributors what their favorite energy actions are. Here’s why they think investors should put Hannon Armstrong Sustainable Infrastructure Capital (HASI -2.14%), Delek logistics partners (DKL 0.13%)and Algonquin Power & Utilities (AQN 0.00%) on their radar.
Reuben Gregg Brewer (Hannon Armstrong): Hannon Armstrong plays an important role in the clean energy revolution. It’s technically a mortgage real estate investment trust (REIT), but that’s a terrible description of what the company does. Hannon Armstrong makes loans, but they are backed by clean energy assets, like solar and wind farms. These assets, on the other hand, are usually backed by long-term contracts, so there is very good visibility on the probability that the REIT will be paid.
So why has the stock fallen nearly 40% from its late 2021 highs? The answer comes down to investor sentiment, which has deteriorated on clean energy stocks, taking Hannon Armstrong with it. This pushed the REIT’s dividend yield to 4%, which is quite attractive compared to the 1.3% offered by the S&P500 Index and the 2.2% of the average REIT, using the Vanguard Real Estate Index ETF as agent.
But what’s most telling here is that Hannon Armstrong increased its dividend in the first quarter. This is the fourth consecutive annual increase. Additionally, the REIT signed deals worth $331 million in the first quarter, up from $188 million in 2021, helping to increase its total portfolio size by 28% year over year. . Distributable profit increased by 21% compared to the same period in 2021.
It’s not a struggling company; it is still in growth mode. In fact, management has reiterated that it expects annualized distributable earnings growth of 10% to 13% through 2024. It’s not a typical energy company, but you might still want to take a closer look.
Quietly accumulating an impressive growth streak
Matt DiLallo (Delek Logistics Partners): Delek Logistics Partners doesn’t get enough credit for its success over the years. The relatively unknown Master Limited Partnership (MLP) has increased its quarterly distribution for 37 consecutive quarters. It’s an impressive growth streak given that most of its peers have had to cut payouts at least once due to sector volatility.
The MLP distribution growth streak is not expected to end any time soon. This year, Delek is experiencing strong momentum fueled by rising commodity prices, pushing drillers to increase their activity levels. This drives higher volumes through its collection systems while providing it with new growth opportunities. In addition to this, his relative, refiner Delek US Holdingsdoes not have any major maintenance projects this year that would impact its volumes.
Meanwhile, Delek Logistics Partners’ agreed to acquire 3Bear Delaware Holdingswhich should immediately boost its cash flow.
On the other side of the equation, Delek Logistics Partners has a solid financial base to support its distribution while growing its business. It has a strong payout coverage ratio of 1.21 times, allowing it to retain cash to fund expansion projects. On top of that, it has a low leverage ratio of 3.3 times, which gives it the flexibility to do trades like 3Bear.
With a rock-solid financial profile and the fuel to continue to grow its distribution – which fetches an attractive 7.4% percentage – Delek Logistics Partners is an under-the-radar energy stock that income-focused investors won’t want. neglect.
This 5% return seems sustainable
Neha Chamaria (Algonquin Power & Utilities): Algonquin is perhaps one of the most overlooked utility stocks.
Founded in 1988, the Canadian company Algonquin today has more than $16 billion in assets. Unlike most utilities that generate and supply electricity and gas, Algonquin is a diversified player that distributes electricity, gas and water, as well as sewage collection services to more one million customers in North America. The company also has a growing renewable energy arm with solar, wind and hydroelectric assets.
After acquiring the New York American Water Company from American hydraulic works for $608 million earlier this year, Algonquin is set to buy Kentucky Power Company and Kentucky Transmission Company from American Electric Power for nearly $2.9 billion by mid-2022.
The moves are part of Algonquin’s plans for capital expenditures of $12.4 billion between 2022 and 2026, which it says should help it grow adjusted earnings per share (EPS) at a compound annual rate. from 7% to 9% over the period. Nearly 30% of this capital expenditure will go to its renewable energy business.
As its adjusted EPS increases, dividends should also increase. Historically, Algonquin has increased its payouts at a compound annual rate of 10% between 2010 and 2020. That’s about as solid as it gets, and I expect the company to continue to reward shareholders with dividends. higher year after year. In fact, Algonquin increased its dividend by 6% last week, marking its 12th consecutive year of dividend increases.
I find this company’s capital expenditure plan encouraging, and given its dividend growth and strong presence in the high-potential renewable energy sector, I think this 5% yielding stock deserves a spot on your radar.