Pattern Energy Group (PEGI +0.00%) has had its share of challenges over the past year, which is why its stock has tumbled more than 20% from its high last year. However, the renewable-power generator seems to be getting back on track. Because of that, CEO Mike Garland is increasingly optimistic about Pattern Energy's future. That was evident on the company's third-quarter conference call, during which he noted five things that point to better days ahead for the renewable-power company.
1. We're on pace to achieve our full-year guidance
Pattern Energy's third-quarter results came in just ahead of the company's expectations. Because of that, CEO Mike Garland stated on the call that "we are in a great position to achieve our targeted CAFD (cash available for distribution) for the year, which we're reiterating today at $151 million to $181 million." Hitting the midpoint of that guidance means the company will have generated enough cash flow to cover its 8.3% yielding dividend.
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2. We have confidence in our dividend
Because Pattern Energy's cash flow is coming in as expected, the company was able to announce another quarterly dividend, which was flat with the prior period. While the company's dividend growth streak came to an end last year, the CEO stated that "we are highly confident in our ability to continue to support the dividend at the levels with the existing portfolio." Those comments suggest that the company plans to stand behind its current dividend.
3. We're recycling capital to grow shareholder value
While Pattern Energy is paying out nearly all its cash flow to support its dividend, the company is working on getting some more breathing room by growing cash flow per share. One way it's doing that is by recycling capital, which includes selling assets at a premium and using the cash to buy higher-returning assets. The company recently completed one such trade, selling its El Arrayan project in Chile for $70.4 million and using the capital to acquire a 51% interest in the Mont Sainte-Marguerite project in Quebec for $37.7 million.
The CEO noted that "we continue to look for opportunities to recycle capital where appropriate, and have initiated a process of selling an additional asset interest and expect to acquire Stillwater or [a] similar project before long." The company took that next step earlier this month by agreeing to sell its interest in the K2 Wind Facility in Ontario for roughly $166 million, which is about 15 times cash flow.
CEO Mike Garland outlined how the company plans to allocate this money by stating on the call:
We intend to use the proceeds from the recycling to fund accretive investments, acquisitions, or repayment of debt. In each case, it improves our CAFD per share. Selling an asset allows us to invest in opportunities that are more accretive to the business. It also demonstrates the significant intrinsic value of the assets in the portfolio compared to the value ascribed to the business in the markets, which we think is considerable.
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4. We have a large pipeline of acquisition opportunities
As Garland noted, one of the uses of these asset sale proceeds will be to make accretive acquisitions. He further pointed out on the call that the company currently has "excellent opportunities for future accretive acquisitions from our identified ROFO (right of first offer) list, which exceeds 1,000 gigawatts of operating capacity." The CEO stated that the company already has its eyes on its next acquisition target, saying that "we believe the 80 megawatts Stillwater project in Montana is a good candidate for acquisition." The wind farm just started operations this month and has a 25-year contract for 100% of its power, meaning it should generate predictable cash flow for years to come.
5. We're positioning for sustainable growth
Pattern Energy's capital recycling program has positioned the company "for additional CAFD per share growth in the coming years," according to the CEO. He further stated that: "we're managing the business to provide stable, sustainable CAFD per share and grow it. We believe this approach is the right one to strengthen our business and that the share price will react accordingly."
By growing cash flow per share, Pattern Energy will enhance the long-term sustainability of its high-yielding dividend while also increasing shareholder value. That growth, when combined with a stronger balance sheet and overall improvement to its financial profile, should enable the company to generate strong total returns for investors in the coming years. That makes it one renewable-energy stock that investors won't want to miss.
