Topic: Energy Stocks

This high-yielding dividend powered by long-term contracts

Although it has largely grown by expanding its own operations, this energy stock has branched out with several acquisitions.

Earlier this year it completed a major takeover that helped spur a jump in revenue and cash. Whether it builds or buys new plants, the company ensures that it has long-term power-purchase contracts in place. That helps sustain a dividend that yields a high 4.9%.


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INNERGEX RENEWABLE ENERGY INC. (Toronto symbol INE; www.innergex.com) operates 31 hydroelectric plants, 19 wind farms and one solar power field. The facilities are spread across the provinces of Quebec, Ontario, and British Columbia, as well as Idaho, France and Iceland. The company gets 48% of its power from hydro plants, 31% from wind, 20% from geothermal and 1% from solar energy.

Innergex began operating in 1990, but waited until 2003 to sell shares to the public (as Innergex Power Income Fund). In 2010, the fund converted to a regular corporation.

The company has steadily expanded its operations in the past few years. To cut its risk, Innergex makes sure it has firm long-term power-purchase contracts in place before it starts to build, or buy, new plants.

In 2017 the company acquired two wind power plants in France. Located about 400 kilometres south-west of Paris, the plants will sell all of their output under a power purchase agreement with EDF; it’s an electric power utility largely owned by the French government.

In February 2018 Innergex completed its acquisition of Alterra Power Corp. for $1.1 billion (25% in cash, 75% in stock). Alterra operates eight projects (three hydro, two wind, two geothermal and one solar), in Canada, the U.S. and Iceland. Several others of the firm’s projects are in development.

Alterra shareholders now own 19% of the combined firm. The new operations will help Innergex diversify geographically, both in the U.S. and Iceland. The expansion also adds a new energy source—Icelandic geothermal power.

Energy stocks: Company raised dividend with July 2018 payment

In July 2018, Innergex bought the rights to build a large-scale solar project in Texas for an undisclosed amount.

The 250-megawatt Phoebe project is fully permitted and will cost around $524 million to build. Innergex will get U.S. federal tax credits to offset 30% of that cost. In addition, under a 12-year power purchase agreement with Shell Energy North America, the project has pre-sold almost all of the power it expects to generate over that period.

Last week, Innergex announced that it has entered an agreement with TransCanada Corp. (Toronto symbol TRP) to acquire the pipeline operator’s 62% stake in five wind farms on the Gaspe Peninsula. Innergex already holds the remaining interests in those operations and will pay $630 million for TransCanada’s. The purchase should contribute $82.9 million to the company’s annual revenues.

Thanks largely to the new operations from Alterra, the company’s revenue in the three months ended March 31, 2018, jumped 58.2%, to $117.9 million from $74.5 million a year earlier. Cash flow per share improved 50.0%, to $0.32 from $0.24.

With the July 2018 payment, the company raised its quarterly dividend by 3.0%, to $0.17 a share from $0.165. The new annual rate of $0.68 yields a high 4.9%.

The stock trades at 5.8 times Innergex’s projected full year cash flow of $2.38 a share.

Recommendation in Canadian Wealth Advisor: Innergex is a buy.

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