What happened

Shares of Pattern Energy (PEGI), an independent power producer that maintains a portfolio of wind and solar projects located in the United States, Canada, Japan, and Mexico totaling 2,806 MW, plunged 13% in 2018, according to S&P Global Market Intelligence. Besides losing favor on Wall Street, the stock price suffered in 2018 as investors grew frustrated with the company's reluctance to raise the dividend.

Check out the latest Pattern Energy earnings call transcript.

So what

Throughout 2018, Pattern Energy found itself consistently falling out of favor with those on the Street. In March, for example, Raymond James downgraded the stock from market outperform to market perform, and Williams Capital downgraded the stock to hold from buy according to TheFly.com. Several months later, an analyst at BofA/Merrill downgraded the stock to underperform from neutral and reduced the price target from $18 to $17. Most recently, in November, an analyst at Desjardins downgraded the stock to hold from buy while maintaining a $22 price target.

A bear in front of a red financial chart.

Image source: Getty Images.

Another source of investors' disappointment last year was the lack of dividend growth. Pattern Energy has paid a dividend in each quarter reaching back to 2013, when the stock went public, and from Q1 2014 through Q3 2017, the dividend rose in each consecutive quarter. But then the party stopped as management made a concerted effort to strengthen the company's balance sheet. Consequently, the quarterly dividend has been frozen at $0.422 per share for the past five quarters.

PEGI Dividend Chart

PEGI Dividend data by YCharts.

Now what

When examining Wall Street's downgrades and revised price targets, investors should always remember to be circumspect about putting too much stock in analysts' actions, since they oftentimes maintain time horizons that are shorter than the multiyear holding periods we favor.

Regarding the company's dividend, on the other hand, investors should closely monitor the company's cash available for distribution (CAFD). Through the first nine months of 2018, Pattern Energy reported CAFD of $133.4 million, representing 28.4% growth over that which it reported during the same period last year. Management, moreover, is confident that Pattern Energy will achieve its forecast of annual CAFD between $151 million and $181 million. Should the company achieve the midpoint of this range, it will represent 14.3% CAFD growth over what it reported in 2017. The company's ability to grow CAFD is critical if it intends to meet its target of achieving a payout ratio of 80% of its CAFD run rate.