There are many Canadian dividend stocks that are under pressure right now. Whether it’s a burdensome debt load, or pressures to cut or reduce dividends, companies like Northland Power (TSX:NPI) are simply not getting the love they deserve. This 5%-yielding renewable energy play is a company I’ve long touted as one that’s worth owning, but it’s clearly not seeing the same sentiment from the market right now.
There are a number of reasons why this is the case, and I’ll dive into a few of those. But I still think Northland Power is worth considering, particularly in the $20-per-share range.
Let’s dive into why this overlooked stock may be worth considering right now.
What does Northland Power do?
First, let’s start off with a brief synopsis of the company’s business model. Northland Power is a Canadian energy giant that develops, owns, builds, and operates green and clean power projects in America, Asia, and Europe. The company generates electricity from clean energy sources like hydro, wind, solar, biomass, and natural gas.
Impressively, Northland has an economic interest or owns 3.4 gigawatts of operating generation capacity. Moreover, it has a significant inventory of construction projects and various development stages, totalling a potential capacity of 15 gigawatts.
Financial picture leaves much to be desired
As a leading green energy stock, some amount of bearish sentiment can likely be tied to higher oil and gas prices. Indeed, given the number of options available to Canadian investors in the energy sector, Northland’s relative value depends on how the fossil fuel industry is doing. Over the past couple of years, rising oil and gas prices have led to some bifurcation between these two energy groups.
However, I think Northland’s financial picture likely drives most of its bearish sentiment right now. In 2023, the company reported revenue of $2.233 billion, with a gross profit of $2.021 billion. Unfortunately, the company posted a loss of $96 million on this revenue, and its levered free cash flow came in at -$75 million.
Without positive cash flow and sustainable profitability, some investors simply won’t touch this energy name. That makes sense. But given Northland’s path to profitability and its historical track record in producing positive free cash flow, I still think this is an overlooked turnaround story worth considering at these prices.
Why is Northland Power a buy?
Northland Power is a major player in the power-generation industry, with a capacity of 3,200 megawatts. It focuses on projects in offshore battery and wind storage, which can drive exponential value in the upcoming years. The company’s expansion into diverse geographic locations and competitive edge in the power industry enhances its market reach and domination.
Currently, the company is concentrated on three major projects: Baltic Power offshore wind in Poland, Hai Long offshore wind in Taiwan and Oneida battery storage in Ontario. Once these three projects are fully operational by 2027, the company can generate aggregate adjusted earnings before interest, taxes, depreciation, and amortization of $570 million to $615 million and free cash flow between $185 and $210 million.
If the company can execute as many expect it can, I think this clean energy company represents a potential winner for those who can be patient. Of course, the stock can still dip from here, but it’s one I think may be worth the gamble right now.
