With West Texas Intermediate (WTI) crude oil prices hitting seven-year lows and Brent Crude oil prices hitting 11-year lows in December 2015, people may want to consider an investment in another sector. Iran is expected to start exporting oil in 2016 once sanctions are lifted, which would add to the existing oil supply glut, potentially driving oil prices lower. The United Nations climate change conference may push demand for sources of alternative energy to mitigate global warming. Additionally, the U.S. solar investment tax credit was extended for another three years, which may drive the demand for solar energy products and services.
Highly risk-tolerant income investors may want to consider dividend-paying alternative energy stocks and yieldcos in 2016. A yieldco is a company that primarily owns clean energy assets to generate income for its investors. Signs of an increasing oil supply glut and incentives to use alternative energy may allow these companies to generate more earnings; therefore, the boards of these companies may raise dividends.
NextEra Energy Inc.
NextEra Energy Inc. (NYSE: NEE) is an electric utilities company that generates electricity from oil, solar, gas, petroleum, nuclear and wind. For the fiscal year ending Dec. 31, 2014, it had 44,900 megawatts of energy-generating capacity. As of Dec. 24, 2015, NextEra Energy is up 0.68% year to date (YTD) and 7.36% over the past three months. It pays a forward annual dividend of $3.08 per share and has a forward dividend yield of 2.99%. NextEra Energy has raised its dividend for five consecutive years at an average annual rate of 21.07%.
NextEra Energy is expected to have a dividend payout ratio of 54.51% for the fiscal year ending Dec. 31, 2015. The dividend payout ratio indicates the portion of a company's earnings per share (EPS) paid out to investors in the form of cash dividends. It indicates whether a company has the capacity to continue raising dividends. NextEra Energy is expected to have a dividend coverage ratio of 1.83. The dividend coverage ratio indicates the number of times a company is able to pay its cash dividend with its EPS. Generally, the higher the dividend coverage ratio, the lower the probability of a dividend cut. Since NextEra Energy has a high dividend coverage and low dividend payout ratio, its dividend is unlikely to be cut.
NextEra Energy has diversified sources of energy, including fossil fuels and alternative energy; therefore, it may be poised to rise because of the investment tax credit extension and climate change conference. Its earnings are projected to increase by 8.80% over its 2015 earnings forecast. Additionally, NextEra Energy is forecast to grow its earnings at an average annual rate of 7.07% over the next five years. Its projected earnings growth rate suggests it is poised to raise its dividend in 2016.
NextEra Energy Partners LP
NextEra Energy Partners LP (NYSE: NEP) is a yieldco formed and sponsored by NextEra Energy Inc. Although NextEra Energy Partners is down 9.32% YTD, it has raised its quarterly dividend by 44% between November 2014 and November 2015. It has a forward annual dividend rate of $1.08 per share and a forward annual dividend yield of 3.64% as of Dec. 24, 2015.
NextEra Energy Partners missed its 2015 third-quarter earnings by 20 cents; however, it is still expected to grow its earnings per share (EPS) by 425% in 2015 over its full-year 2014 EPS. NextEra Energy Partners is paying out more in cash dividends; therefore, it has a dividend coverage ratio of 0.78 and a dividend payout ratio of 128.57%.
Although NextEra Energy Partners is paying out more than it is earning, the investment tax credit extension will likely boost this yieldco's earnings in 2016. It is expected to grow its earnings by 47.86% during the 2016 fiscal year over its 2015 earnings forecast. Additionally, it is expected to grow its earnings at an average annual rate of 18% over the next five years. This may indicate it is poised to raise its earnings in 2016, but potential investors should understand it may not raise its dividend at the same rate it did between 2014 and 2015.
Pattern Energy Group Inc.
Pattern Energy Group Inc. (NASDAQ: PEGI) is a small-cap independent power company that owns interest in 16 wind-power projects with a capacity of 2,282 megawatts as of Sept. 3, 2015. Pattern Energy is poised to grow its earnings and dividends in 2016 due to recent developments in the alternative energy industry. The company has a forward annual dividend rate of $1.49 per share and a forward annual dividend yield of 6.71% as of Dec. 24, 2015.
Although Pattern Energy is expected to report an earnings loss of 29 cents per share, its EPS is still expected to grow by 88.65% over its 2014 EPS. Since it is expected to report an EPS loss in 2015, it does not have a projected dividend payout ratio nor a projected dividend coverage ratio. However, during the 2016 fiscal year, its earnings are expected to grow by 340.68% over its 2015 EPS forecast. Additionally, it is expected to grow its earnings at an average annual rate of 15% over the next five years. Therefore, Pattern Energy is poised to rise and raise its annual dividend per share in 2016.
NRG Yield Inc.
NRG Yield Inc. (NYSE: NYLD) is a yieldco of NRG Energy Inc., which is the largest independent electricity generator in the United States. NRG Yield operates through its subsidiaries and acquires, owns and operates renewable and conventional energy generation and thermal infrastructure asset contracts. For the fiscal year ending on Dec. 31, 2014, NRG Yield had four natural gas facilities, 11 solar and wind generation facilities, four thermal facilities and two portfolios of solar facilities. As of Dec. 24, 2015, NRG Yield has a forward annual dividend rate of 86 cents per share and a forward annual dividend yield of 5.79%. NRG Yield is up 13.19% over the past three months and 3.57% over the past week.
NRG Yield is forecast to have a dividend payout ratio of 143% for the 2015 fiscal year. It is expected to have a dividend coverage ratio 0.70. Although the company is expected to pay more than it will earn in 2015, the CEO of NRG Yield reassured investors the company could increase its dividends at a high rate even with its challenges of increasing its revenues. Therefore, NRG Yield is poised to raise its dividend in 2016.
NRG Yield is expected to report a full-year 2015 EPS of 60 cents per share, which is slightly higher than its 2014 EPS of 57 cents. It is expected to report a full-year 2016 EPS of $1.21, which is a 101.67% increase over its 2015 forecast. Over the next five years, NRG Yield is expected to grow its EPS at an average annual rate of 27.45%.