lorddarley

Best Risk / Reward Income Investments, Part II: Canadian Energy Infrastructure Stocks

For those interested inAtlantic Power, I just put a couple of posts on Cliff W's other article (Part I).

Working out the math for the units -- Atlantic Power is a combination of a subordinated note and stock -- is not for the faint of heart.

Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks

One correction. Note redemption would be $6.05 Canadian, 105% of the Canadian book value of the notes.

Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks

Atlantic Power units include an 11% note paired with the stock. The note portion can be redeemed as early as November for $5.75 (105% of Canadian book value). Units currently trade at $8.99 (Canadian).

I hate the thought of losing the yield from the notes, but November redemption would leave you with the stock at a net cost of $2.94 (Canadian) paying a dividend of 15.6% (Canadian).

The main problem (or attraction) is that you get so much cash returned to you if they do redeem, that you will have to find another home for it. Still, that's not such a bad problem.

If they don't redeem, they have been clear that cash flow from projects makes payouts sustainable into 2015. My guess is that they will not redeem and will make another acquisition. Fortunately, they don't overpay, and their project debt is non-recourse to the parent. It's a pretty solid investment. Just don't panic about stock moves, because it is thinly traded.