Published on March 22nd, 2023 by Aristofanis Papadatos
Northland Power (NPIFF) has two appealing investment characteristics:
#1: It is offering an above average dividend yield of 3.9%, which is more than double the 1.6% dividend yield of the S&P 500.
#2: It pays dividends monthly instead of quarterly.
Related: List of monthly dividend stocks
You can download our full Excel spreadsheet of all monthly dividend stocks (along with metrics that matter like dividend yield and payout ratio) by clicking on the link below:
Northland Power’s combination of an above average dividend yield and a monthly dividend make it appealing to individual investors.
But there’s more to the company than just these factors. Keep reading this article to learn more about Northland Power.
Business Overview
Northland Power is an independent power producer that develops, builds, owns, and operates green power projects in North America, Europe, Latin America, and Asia. The company produces electricity from renewable resources, such as wind, solar, or hydroelectric power, as well as clean-burning natural gas and biomass for sale under power purchase agreements and other revenue arrangements. Northland Power owns or has an economic interest in 3.2 gigawatts of generating capacity. The company was founded in 1987 and is headquartered in Toronto, Canada.
Northland Power greatly benefits from a strong secular trend, namely the shift of the entire world from fossil fuels to clean energy sources. This shift has greatly accelerated since the onset of the coronavirus crisis, about three years ago.
The tailwind from this secular trend is clearly reflected in the growth trajectory of Northland Power.
Source: Investor Presentation
The company has expanded from just one country in 2015 to six countries now. During this period, Northland Power has essentially tripled its generating capacity. It is also remarkable that the stock has offered a 13% average annual total return to its shareholders since its IPO.
Thanks to the essential nature and the high-growth mode of its business, Northland Power proved essentially immune to the coronavirus crisis. In addition, thanks to its ability to pass its increased costs to its customers, the company has proved resilient in the highly inflationary environment prevailing right now. As a result, Northland Power posted record earnings per share of $2.55 in 2022.
Growth Prospects
As mentioned above, Northland Power has a major growth driver in place, namely the global shift from fossil fuels to renewable energy sources. This shift, which has greatly accelerated in the last three years, has decades to run.
It is also important to note that most renewable energy sources had high production costs in the past and thus they needed government subsidies to become economically viable. However, thanks to major technological advances, this is not the case anymore. The production cost of solar energy and wind energy has pronouncedly decreased and hence renewable energy sources can easily replace fossil fuels nowadays. To provide a perspective, the cost of solar power has decreased from more than $4 per watt to less than $1 per watt over the last decade.
The primary growth drivers of Northland Power are depicted in the chart below.
Source: Investor Presentation
The company has several growth projects under development right now. These projects have a total capacity of 14 GW. As the current generating capacity of the company is only 3 GW, it is evident that Northland Power has immense growth potential over the next several years.
Northland Power has grown its earnings per share by 11.3% per year on average over the last decade. Given the exciting growth prospects of the company, but also the regular issuance of new shares and the increasing focus of many large players in this high-growth business, we expect Northland Power to grow its earnings per share by 8.0% per year on average over the next five years, from $2.55 in 2022 to $3.75 in 2027. The company may exceed our expectations, but we prefer to be on the safe side.
Dividend & Valuation Analysis
Northland Power is currently offering an above average dividend yield of 3.9%, which is more than double the 1.6% yield of the S&P 500. The stock is thus an interesting candidate for income-oriented investors but the latter should be aware that the dividend is affected by the fluctuation of the exchange rate between the Canadian dollar and the USD.
Northland Power has a payout ratio of only 36% and a healthy balance sheet, with a stable BBB credit rating from S&P. Given also the promising growth prospects of Northland Power and its resilience to recessions, its dividend (in CAD) should be considered safe.
On the other hand, investors should note that Northland Power has failed to grow its dividend meaningfully over the last decade, primarily due to the devaluation of the Canadian dollar vs. the USD. As a result, it is prudent not to expect meaningful dividend growth going forward.
In reference to the valuation, Northland Power is currently trading for 9.4 times its earnings per share in the last 12 months. We assume a fair price-to-earnings ratio of 12.0 for the stock. Therefore, the current earnings multiple is lower than our assumed fair price-to-earnings ratio. If the stock trades at its fair valuation level in five years, it will enjoy a 5.0% annualized gain in its returns.
Taking into account the 8.0% annual growth of earnings per share, the 3.9% dividend yield and a 5.0% annualized expansion of valuation level, Northland Power could offer a 15.7% average annual total return over the next five years. This is certainly an attractive expected return, particularly given the secular growth of this business.
Final Thoughts
Northland Power is thriving right now, with record earnings in 2022. Even better, the company has ample room to continue growing for decades. Moreover, the stock is offering an above average dividend yield of 3.9%, with a payout ratio of only 36%. It thus combines many positive features, which are suitable, not only for income-oriented investors, but also for growth-oriented investors.
However, investors should be aware that the stock is highly volatile during periods in which its growth decelerates. Therefore, only patient investors, who can ignore short-term pressure and remain focused on the long run, should consider purchasing this stock.
Moreover, Northland Power is characterized by exceptionally low trading volume. This means that it is hard to establish or sell a large position in this stock.
If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:
Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
