Monthly dividend stocks are popular with many dividend income investors. I personally prefer monthly dividend stocks to match my monthly bills. My cable, car loan, mortgage, health insurance, and Apple 4S iPhone all require monthly payments. I do try to reinvest the dividends to increase my monthly stream through the power of compounding. In this article I will address Atlantic Power (NYSE:AT) and 4 other stocks with yields ranging between 4.8% and 10.4%.
Atlantic Power is a power generation and energy services company with operations in the U.S. and Canada. Atlantic Power directly or indirectly manages and operates 31 power generation facilities in multiple states for a total production of 2,140 MW ranging from its 400 MW Gregory facility in Texas, to a small 6 MW facility in British Columbia. Its energy operations primarily use natural gas for power generation but also include biomass, coal, hydro and wind. 95% of its production is "clean" power.
Atlantic Power operates in eleven U.S. states and 2 Canadian provinces. It primarily focuses on energy generation operations that are tied to specific projects, regions or large commercial customers, and enters into long-term supply contracts so its revenue stream is not overly affected by the volatility of energy prices or consumer demand. Atlantic Power is gradually expanding into biomass based energy production through a majority interest in Rollcast Energy. Over the years, Atlantic Power has grown through capital investment into new projects, through acquisitions, and through power development joint ventures. Its stated goal includes paying dividends to shareholders through sustainable and profitable operations.
On February 29, the 2011 year-end results will released to the public. The one over riding concern to me is Atlantic Power's high leverage rate and desire to pay a high dividend yield. Per the company's press release, the 2012 dividend payout ratio will range between 90-97% of earnings:
For its fiscal year ended December 31, 2011, Atlantic Power reported revenue of $284.9 million, up 45.9% from fiscal 2010, and a net loss of $38.4 million, which was significantly higher than a net loss of $3.8 million in 2010. Its net loss per share was 50 cents. Atlantic Power reported cash of $60.7 million, total assets of $3.2 billion, long term debt of $1.4 billion, and total equity of $1.1 billion.
Atlantic Power pays out a substantially large portion of its distributable cash flow as dividends. Its payout ratio was 105% for 2011 and 100% for 2010. Dividends are paid monthly, in Canadian dollars, and were Canadian $1.15 per month or Canadian $13.8 annually, for a dividend yield of 8% as March 9. The 2011 and 2010 dividends have remained approximately the same for 2 years now:
Atlantic Power shares traded at the $14.36 level as of March 9. The stock has a 52-week trading range of $12.52 to $16.34 and a market capitalization of $1.6 billion (1.5x book value).
Per the below SEC 10K filing, investors should avoid Atlantic Power:
The company has been unprofitable for the past 3 years. I cannot figure out why a company is paying out an 8% dividend when its business model is unprofitable. My recommendation is to avoid Atlantic Power.
Atlantic Power's peer group includes small, clean power generation companies such as solar producer Ormat (NYSE:ORA), Algonquin Power (OTCPK:AQUNF), Dynegy (NYSE:DYN) and GenOn Energy (NYSE:GEN). Most of its peers pay minimal or no dividends.
Alternative Monthly Dividend Producers
There are plenty of other monthly dividend paying stocks which can bolster an investor's regular income stream.
Enerplus Corporation (NYSE:ERF)
Enerplus is N. American energy company with a diversified asset base of oil and gas properties in Canada and the U.S. The company began in 1985 and focused upon paying dividends to shareholders.
Baytex Energy Corp (NYSE:BTE)
Baytex is a conventional oil and gas company engaged in the acquisition, development and production of oil and natural gas in the Canadian Sedimentary Basin and the United States. The company focuses upon oil production development and dividend growth.
GAMCO Global Gold, Natural Resources (NYSEMKT:GGN)
GAMCO Global Gold, Natural Resources is a closed-end fund that owns gold and natural resource stocks. The Gabelli management sells covered calls against their long positions. The covered calls are reported as return of capital.
I believe owning GAMCO Global Gold, Natural Resources is a good choice on a few fronts. The first is spot gold was recently trading at $1,713.50 per ounce. Hard assets and commodities do well, historically, when countries are printing fiat currency.
The fund is currently selling at a 4.05% premium to net asset value. An investor has to make the choice to own GAMCO Global Gold, Natural Resources when it is trading at a discount to net asset value. The yield is 10.38% per year. The fund pays a 14 cents per share dividend on a monthly basis, and has done so for almost 6 years.
Buy GAMCO Global Gold, Natural Resources and collect a monthly 14 cent dividend. Invest the proceeds into other asset classes.
Whitestone REIT (NYSEMKT:WSR)
Whitestone REIT operates retail, office, and warehouse properties located in the Houston, Dallas, San Antonio, and Phoenix areas. The company has a sub $200 million market capitalization. The company pays a 9.5 cent per month dividend.
Atlantic Power has managed to increase revenue but its earnings are still in the red. While it continues its commitment to dividend payments, its capital structure may be under pressure because of losses in fiscal 2011 that were significantly higher than expectations. Given its low dividend yield and operational losses, investors will likely be better rewarded elsewhere at this time.
I recommend investors purchase GAMCO Global Gold, Natural Resources and Baytex Energy . Choosing the best monthly dividend payers will provide in the best absolute annual returns.