Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
Real estate, utility and energy companies on the TSX have had a tough time in the last two years. The rising cost of debt, hit by a combination of interest rate hikes and inflation, has forced some companies to cut their dividends as they struggle to make interest payments while using the money for organic growth and dividends, and Innergex Renewable (TSX:INE) is no exception.
The company’s dividend payout ratio exceeded 100% back in November 2023. Shortly thereafter, Innergex Renewable announced a 50% cut to its quarterly dividend. Today, the renewable energy company paid shareholders a quarterly dividend of C$0.09 per share, for a dividend yield of 4.2%. So, is it still a good time to buy this renewable energy dividend stock?
With a market cap of about C$1.8 billion, Innergex Renewable is one of the largest clean energy companies in Canada. Over the years, the company has built a diversified portfolio of cash-generating assets in verticals such as solar, wind and hydro, with an installed renewable energy capacity of 4.3GW (gigawatts), which can power more than 3 million homes.
Over the past nine years, Innergex has more than tripled its generating capacity, generating higher revenues and cash flows. The company now has 87 operating facilities and multiple projects under development, with the goal of developing and acquiring assets that offer attractive risk-adjusted returns.
Investors clearly were not impressed at the news of the dividend cut in early 2024, resulting in Innergex shares now down 73 per cent from their all-time high. However, management has been emphasizing that by recalibrating the dividend and lowering the payout ratio, its updated capital allocation strategy will increase financial flexibility and allow for organic investment in newly built projects. Innergex Renewable’s further payout ratio will be somewhere between 30 and 50 per cent of free cash flow, which will provide the company with an additional C$75 million to use to support growth plans.
It’s worth pointing out that Innergex’s current development portfolio boasts more than 10 gigawatts of capacity, more than double its current capacity.
Despite the dividend cut, one fact that investors shouldn’t overlook is that the company’s earnings are tied to long-term power purchase agreements, and thus are able to report steady cash flows throughout the market cycle. The company’s high-quality, long-lived hydro assets support its leverage well compared to its C$6 billion-plus long-term debt.
In 2024, the company expects adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) to be between C$725 million and C$775 million, and free cash flow is expected to be in the range of C$0.70 to C$0.85 per share. Taking the middle point, Innergex’s current share price is 11 times forward cash flow, making the valuation fairly cheap. Bay Street analysts remain bullish on the TSX energy dividend stock, expecting shares to rise nearly 30% over the next 12 months.
