Solar, Wind, And Hydro, Oh My! An Independent Power Producer Dividend Dogs September Report

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Includes: AQN, BEP, CAFD, CESDY, CRPJY, CSQSY, EYUBY, HGKGF, HGKGY, INGXF, NEP, PEGI, RAMPF, TAC
by: Fredrik Arnold

Summary

Renewable resources of all forms are being tapped and resold on the open market by the independent power producer industry (IPP) within the Utilities sector.

YCharts lists 78 IPP stocks on U.S. exchanges in the Utilities sector. Of those, 24 pay dividends. This report targets and identifies the brightest prospects for long-term gains.

Top 20 IPP stocks ranged in yield from 2.08% to 17.07% on 9/1/17. Top 10, AQN, RAMPF, INGXF, BEP, CRPJY, PRGI, CSQSY, CAFD, HGKGY, topped by CESDY, averaged 7.62%.

IPP top 10 firms by broker estimated target gains, AQN, EYUBY, INGXF, NEP, CSQSY, HGKGF, CAFD, PEGI, HGKGY, and CESDY averaged 6.97%.

$5k invested in the lowest-priced five July top-yield Utilities showed 12.42% more net gain than from $5k invested in all 10.  Little low price Dogs dominated the IPPs industry for September.

Actionable Conclusions (1-10): Brokers Believed 2.2% To 15.07% Net Gains For Top 10 Independent Power Producer (IPP) Dogs By September 2018

Eight of ten top dividend-yielding IPP dogs were verified as being among the top ten of twenty gainers for the coming year based on analyst one-year target prices. (They're tinted gray in the chart above). So, the yield-based dog forecast for Utilities as graded by Wall St. wizards was 80% accurate.

Ten probable profit-generating trades revealed in YCharts for August 2018 were:

Companhia Energética de Sao Paolo (OTCPK:CESDY) was projected to net $150.72, based on no target price estimates from analysts, just dividends, less broker fees. The Beta number showed this estimate subject to volatility 152% more than the market as a whole.

Power Assets Holdings (OTCPK:HGKGY) was projected to net $112.05, based on dividends only, with target price support from analysts, less broker fees. The Beta number showed this estimate subject to volatility 43% less than the market as a whole.

Pattern Energy Group (PEGI) was projected to net $109.78, based on dividends, plus median target price estimates from 13 analysts, less broker fees. The Beta number showed this estimate subject to volatility 5% more than the market as a whole.

8point3 Energy Partners (CAFD) was projected to net $93.51, based on dividends, plus a mean target price estimate from 14 analysts, less broker fees. A Beta number was not available for CAFD.

Power Assets Holdings (OTCPK:HGKGF) was projected to net $74.61, based on dividends alone, with no target price estimates from analysts, less broker fees. The Beta number showed this estimate subject to volatility 74% less than the market as a whole.

Companhia Energética de Sao Paolo (OTCPK:CSQSY) was projected to net $52.48 based on no target price estimates from analysts, just dividends, less broker fees. The Beta number showed this estimate subject to volatility 86% less than the market as a whole.

NextEra Energy Partners (NEP) was projected to net $32.10, based on target price estimates from 14 analysts, plus annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 26% more than the market as a whole.

Innergex Renewable Energy (OTCPK:INGXF) was projected to net $26.07, based on no estimates from analysts, just dividends, less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.

Electricity Generating (OTCPK:EYUBY) netted $22.94 based on no price estimates from analysts, just dividends, less broker fees. The Beta number showed this estimate subject to volatility 24% less than the market as a whole.

Algonquin Power (AQN) was projected to net $22.81, based on no target price estimates from analysts, only their estimated annual dividend, less broker fees. The Beta number showed this estimate subject to volatility 19% less than the market as a whole.

The average net gain in dividend and price was estimated at 6.97% on $10k invested as $1k in each of these 10 IPP dogs. This gain estimate was subject to average volatility 1% above the market as a whole.

Actionable Conclusions (11): One IPP Dividend Dog Said To Lose 18.62% By September 2018

The probable losing trade revealed by YCharts to September 2018 was:

TransAlta (TAC) projected a loss of $186.21 based on dividend and a median target price estimate from eight analysts, including $20 of broker fees. The Beta number showed this estimate subject to volatility 64% less than the market as a whole.

The Dividend Dogs Rule

Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More precisely, these are, in fact, best called, "underdogs".

Top 24 September Independent Power Dogs By Yield

Actionable Conclusions (11-20) 10 Top Dividend Independent Power Producer Stocks By Yield

Top 10 IPP dogs selected 9/1/17 by yield represented all varieties of renewable power generation. Top yielding stock, Companhia Energética de Sao Paolo [CESP] (CESDY) [1] was the top of four hydroelectric supply representatives in the top 10. The others placed sixth, eighth, and tenth: Companhia Energética de SP (CEQSY) - the sister company [6]; Innergex Renewable Energy [8]; Algonquin Power [10].

Second top utility by yield was one of two wind farm, waste gasification, gas and property holding entities in Hong Kong, the other placing fifth, Power Assets Holdings (HGKGY) [2] and (HGKGF) [5].

Wind power firms dominated the list because most representatives provided multiple power sources, such as CESP in first and sixth places as well as companies placing third, seventh, eighth, ninth, and tenth: Pattern Energy group [3]; NextEra Energy Partners [7]; Innergex Renewable Energy [8]; Electricity Generating [9], and Algonquin Power [10].

An exclusively solar dedicated firm is 8point3 Energy Partners [4]. Others including solar components were NEP, INGXF, and EYUBY. All have international operations, but CAFD confines itself to US solar projects through its sponsors as a "yieldco" step-child of First Solar (NASDAQ:FSLR) and SunPower (NASDAQ:SPWR).

Finally, the Quebec-based utility Independent geothermal development firm placed ninth, Polaris Infrastructure (OTCPK:RAMPF) [9], and completed the top 10 September IPP dogs by yield.

Actionable Conclusions: (21) Top Three IPP Dogs Showed 1.54% To 6.29% Analyst-Estimated Price Upsides To September 2018; (22) Two Showed Downsides of 1.7% and 18.7%

To quantify top dog rankings, analyst mean price target estimates provide a "market sentiment" gauge of upside potential. Added to the simple high-yield "dog" metrics, analyst mean price target estimates provided another tool to dig out bargains.

Actionable Conclusions: Wall St. Brokers Calculated (23) A -4.3% Median Target Price Upside and (24) 3.8% Net Gain From 20 IPP Upside Dogs Come September 2018

IPP top 20 stocks were graphed below to show relative strengths by dividend and price as of September 1, 2017, and those projected by analyst mean price target estimates to the same date in 2018.

A hypothetical $1,000 investment in each equity was divided by the current share price to find the number of shares purchased. The shares number was then multiplied by projected annual per share dividend amounts to find the dividend return. Thereafter, the analyst mean target price gauged the stock price upsides and net gains, including dividends, less broker fees, as of 2018.

Historic prices and actual dividends paid from $10,000 invested as $1k in each of the stocks and the aggregate single share prices of those 10 stocks created data points for 2017. Projections based on estimated dividend amounts from $1,000 invested in the 10 stocks and aggregate one-year analyst target share prices from Yahoo Finance created the 2018 data points green for price and blue for dividend.

YCharts analysts' median one-year targets projected a 0.14% lower dividend from $10k invested as $1k in 10 dogs in this group while aggregate single share price for those 10 was projected to increase by 0.36% in the coming year. Notice, price lower than dividend in the coming year forecasts no Dow-like overbought conditions for the NPP top yield dogs in 2018.

The number of analysts contributing to the target price estimate for each stock was noted in the next to the last column on the charts. Three to nine analysts was optimum for valid projection estimates. Estimates provided by one analyst were generally not applied (n/a).

A beta (risk) ranking for each stock was provided in the far right column of the above chart. A beta of 1 meant the stock's price would move with the market. Less than 1 showed lower than market movement. Higher than 1 showed greater than market movement. A negative beta number indicated the degree of a stock's movement opposite of market direction.

Analysts Forecast A 12.42% Advantage For Five Highest Yield, Lowest Priced Independent Power Industry Stocks To September 2018

Ten top IPP dogs were culled by yield for their monthly update. Yield (dividend/price) results verified by YCharts did the ranking.

As noted above, top 10 IPP dogs selected 8/31/17 showing the highest dividend yields represented a variety of renewable energy producers constituting the industry.

Actionable Conclusions: (25) Analysts Projected Five Lowest-Priced of the Top 10 Highest-Yield IPP Dogs Delivering 7.28% Vs. (26) 6.48% Net Gains by All 10 by September 2018

$5,000 invested as $1k in each of the five lowest-priced stocks in the top 10 Dividend Utilities kennel by yield were predicted by analyst one-year targets to deliver 12.42% more gain than $5,000 invested as $.5k in all of those 10. The second lowest priced IPP top yield dog, Companhia Energética de Sao Paolo (CESDY), was projected to deliver the best net gain of 15.07%.

The five lowest-priced IPP top yield dogs for September 1 were: Companhia Energética de Sao Paolo (CSQSY) and (CESDY); Power Assets Holdings; Algonquin Power; Innergex Renewable Energy, with prices ranging from $4.03 to $11.30.

Five higher-priced IPP dogs for September 1 were: Polaris Infrastructure (OTCPK:RAMPF); 8point3 Energy Partners; Pattern Energy Group; China Resources Power; Brookfield Renewable (BEP), whose prices ranged from $11.30 to $34.68.

The distinction between five low-priced dividend dogs and the general field of 10 reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added a unique element of "market sentiment" gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market. Caution is advised, since analysts are historically only 20% to 80% accurate on the direction of change and just 0% to 20% accurate on the degree of change.

See my instablog for specific instructions about how to best apply the dividend dog data featured in this article, this glossary instablog to interpret my abbreviated headings, and this instablog to aid your safe investing. -- Fredrik Arnold

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

One of these top 20 IPP pups by yield qualifies as a valuable catch! Find it among the now 52 Dogs of the Week I found on The Dividend Dog Catcher premium site, or the 52 Dogs of the Week II now accumulating a track record. A Dogs of the Week III (DC Safari) portfolio launches this month, on September 8. Click here to subscribe or get more information.

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Stocks listed above were suggested only as possible reference points for your Utilities dog stock purchase or sale research process. These were not recommendations.

Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from www.indexarb.com; YCharts.com; finance.yahoo.com; analyst mean target price by Thomson/First Call in Yahoo Finance. Dog photo: independent.co.uk

Disclosure: I am/we are long CAFD.

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.