The Nest Egg Portfolio: 6%+ Yielding Red Electrica De Espana Stays In The Portfolio

Summary

• Red Electrica's cash flows remain robust despite the demand drop in Spain and the new regulatory framework with lower remuneration for its Spanish activities.
• The dividend appears to be safe, and an interim dividend will be distributed in January.
• Two positions were sold at nice profits in the past few months, and the cash level was boosted in excess of 10%.
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Introduction

Three months have gone by since the previous edition of the Nest Egg Portfolio so it’s about time for a closer look at the portfolio and update it with a few recent transactions while also removing the options from the portfolio past their expiry date.

In the previous edition of the Nest Egg Portfolio, Orange Belgium (OTC:MBSRF) (OTC:MBSRY) was added back to the portfolio. Unfortunately (or, rather, fortunately) we sold the stock again in December after parent company Orange (ORAN) made a run to acquire all outstanding shares of Orange Belgium it didn’t already own. Apparently Orange shared our thesis Orange Belgium was undervalued, but unfortunately our profits are minimal as we hadn’t established a full position yet. You can re-read our previous Nest Egg Portfolio about Orange Belgium here.

In this edition, we’re looking back at Red Electrica (OTC:RDEIF) (OTCPK:RDEIY), the Spanish power transmission operator. Back in 2017, the company promised an increasing dividend, and although it has indeed continued to pay dividends, the share price hasn’t moved. Time for a check-up.

Red Electrica de Espana: time for an update

Red Electrica has a very liquid listing on the Madrid Stock Exchange, where it’s trading with REE as its ticker symbol. With an average daily volume exceeding 1.4 million shares, the Spanish listing offers superior liquidity.

Source: Yahoo Finance

In its 9M 2020 announcement, Red Electrica provided a nice overview of how the renewable energy sector in Spain gained a lot of importance this year. About 61% of Spanish electricity production is now emission free, and Red Electrica will continue to invest in assets that simplify the transmission of "green" energy throughout Spain.

Source: company presentation

Although the demand for electricity fell by about 6.6% in Spain, Red Electrica was able to keep the impact on its revenue limited as

Analyst’s Disclosure:I am/we are long RDEIF. 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.

I also have a long position in ANIOF, KLPEF & TOT.