The Wood Pellet Stock That's a Great Dividend-Yield Play

Enviva (EVA 13.64%) is the world's largest producer of industrial wood pellets, which can be burned as a source of energy. The company recently converted from a limited partnership to a corporation, and the stock provides an impressive dividend yield.

In this video clip from "The Rank," recorded on Feb. 14, Motley Fool contributors Jason Hall, and Tyler Crowe discuss what makes Enviva's business attractive, and how investors benefit from its recent conversion to a corporation.

Jason Hall: Enviva is a really interesting business. It used to be a limited partnership. That made it niche-y and a little less attractive to a lot of investors because of the Schedule K-1 for your dividends, it's not as easy to hold in a retirement account and all that stuff. But it recently converted to a corporation which makes it really compelling. What the hell is it? This is a company that makes wood pellets. It's biomass, and this is hugely compelling as a renewable energy source.

You think about in the southeastern United States and lumber country where you have all of these forestry. Where all of these trees are growing that are turning to lumber, they're turned into wood pulp for paper and other products like that. You have all this leftover stuff. You have the tops of the trees, trees that grow crooked and aren't really good for making lumber or other stuff from. They have a low-cost access to the suppliers. They build their plants in that area where they have geographical access. They also have access to ports. They take this material and they mostly ship it to Europe where it offsets coal or natural gas as a feedstock for electricity production.

How is burning wood environmentally friendly? Because the idea is you have this loop. Can be carbon-neutral where the tree grows, as it grows, its carbon sync. Then you burn that material and the carbons released back into the atmosphere, but then it's sunk back again as you grow the forestry. The idea is actually, if you manage the forestry well, you can actually remove more carbon than is being produced as the output. It fits right in the existing niche, for the existing infrastructure, for the way power is being produced. You don't have to have major changes to a power plant. That makes it a really attractive to power producers. It's a great dividend yield play. I'm not sure what the yield is today, but I know it's over 4%. Tyler, correct me if I'm wrong. We've got a great track record of growing that dividend and I think they can continue to grow it. I think also part of the thesis, frankly is larger investor pool. Now as a corporation, you're going to see more money come into it as an investable idea. I think it's really well run and I like it a lot. Tyler wanted to talk about it. I told him he couldn't pick it. He had to pick something different.

Tyler Crowe: Yeah. Just 4.68. I'm sorry. Did I get it right?

Hall: 4.7% yield.

Crowe: Yeah, 4.7% yield right now. Everything you said was pretty much exactly what I was going to say with the corporation conversion. It is also a much more shareholder-friendly deal as a master limited partnerships beforehand, it had this general partnership. It's how most markets and limited partners work and have this damn things called incentive distribution rights. There are an awful thing, they're suck on cash.

Hall: Somebody gets a larger portion of the take than the rest of the investors do.

Crowe: Proportional to their ownership of the company. It's a racket. I hate them. Any company that still has IDRs should be drawn and quartered. I was very glad to see that they got rid of that and went to a regular corporation.