In the last few days, Terraform Global (NASDAQ:GLBL) has seen its stock value plummet from 4.24 to 3.26. The dividend yield, according to the company's "Minimum" dividend forecast now stands at over 33% per annum.
I called the company yesterday to ask if there were any news leaks and if there were news leaks would the company be obligated to inform shareholders.
The company's response to my rather legalistic inquiry was understandably careful, but still extremely informative.
The company highlighted background information that is largely accessible through careful internet searches.
First, the company reminded me that the private placement shares that were purchased at the IPO were now free to be sold. The lock up period ended this week.
Second, I was reminded that GLBL trades at a relatively low volume, making it susceptible to large numbers of shares being sold at one time.
I asked why shareholders would sell at such a low price, and we entered into a discussion about the company's dividend.
The most important new information that the company seemed to indicate was that the company has enough cash available for distribution (NASDAQ:CAFD) to pay both its A and B share dividends. This would seem to be a relief for both GLBL shareholders and Sunedison shareholders, as SUNE is currently obligated to cover any dividend payment shortages for Terraform Global.
The company specifically mentioned the $1.10 in annual dividend, which would indicate confidence in the year. Their tone seemed to indicate confidence in the foreseeable future.
Further, since B shares have no right to be paid dividends until March 31, 2017, it would seem the confidence extends beyond 2016.
Another important piece of new information was that the earnings and dividends announcement will be made around February 25. If the ex-dividend date is in early March, this may give investors little time to jump into the stock after earnings to reap what now looks like an 8+% dividend payout.
In the context of trying to explain to me why the stock price would plummet so deeply, the company highlighted background information about Sunedison phasing out financial support for GLBL; they explained that some investors may see this as resulting in a lower dividend.
The company also explained that some investors may also be concerned about foreign exchange rates, but that Terraform Global had hedged its currency risks for three years. Nevertheless, some investors may be concerned about what happens after three years of hedging and conditions remaining negative to earnings.
In this context, the company demonstrated in specific numbers how investors could come to the conclusion that the dividend could be substantially lower than the current $1.10.
It must be noted that the call had to end before we could discuss scenarios in which the $1.10 dividend is increased.
Also, the company's most recent 8-K backs up their assertion yesterday that their is plenty of cafd to cover the $1.10 dividend. In fact the tone and implications of the conversation seemed to indicate confidence in the foreseeable future for the Minimum dividend payout.
As further background, the author points to the company's S-1 documents where the company describes the Minimum dividend at length and how Sunedison must cover the Minimum dividend until after March 31, 2017, that is, if Terraform Global itself cannot pay the Minimum dividend (their capital M, not mine). Further,
Upon completion of this offering, the amended and restated operating agreement of Global LLC will provide that, during the Subordination Period, the holders of Class A units (and Class B1 units, if any), will have the right to receive the "Minimum Quarterly Distribution" of $0.2750 per unit for each whole quarter, or $1.1000 per unit on an annualized basis, before any distributions are made to the holders of Class B units.
Public investors such as us own the Class A, and Sunedison owns the B class shares.
This is as much of a guarantee, I believe, that any company can give regarding its dividend. And this morning, that dividend stands at over 35%. There are five dividend distributions before March 31, 2017, representing a 43% gain.
What happens after March 31, 2017? There is no indication that Terraform cannot maintain the power plants that provide these dividends, and as stated in the 8K, more plants will come online in Q1 of this year. And further plants will come online later this year, all increasing the cafd, which, according to the 8K, already has a 10 million dollar cushion for Q4.
Disclosure: I am/we are long GLBL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.