Founded in 1987, Northland Power (TSX:NPI) has been committed to producing electricity with clean energy sources. Over 90% of its revenue is contracted, providing a stable revenue stream. The company also boasts an impressive 16-year weighted average contracted revenue life, positioning it well for long-term growth. As Northland Power navigates the evolving energy landscape, the question arises: is its 5.6% dividend yield enough to entice investors?
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Growth potential in renewable energy
Northland Power manages approximately 3.2 GW of operating capacity, with over 40% derived from onshore wind and solar, 38% from offshore wind, and 22% from natural gas. This diverse energy mix not only mitigates risks but also opens avenues for future growth. The company has a robust project pipeline nearly four times its current operating capacity, hinting at significant potential ahead.
Among its secured projects are notable initiatives like the 250 MW Oneida battery energy storage project in Canada, expected to come online by mid-2025, and the ambitious Hai Long offshore wind project in Taiwan, slated for 2026 to 2027. Additionally, the Baltic Power offshore wind project in Poland, with a capacity of 1,140 MW, is also in the works. As these projects become operational, Northland Power is poised to experience a considerable boost in cash flow, further solidifying its financial foundation and enhancing its ability to sustain dividends.
Resilience amidst market challenges
Despite the company’s solid operational framework, Northland Power has faced challenges, particularly in the wake of rising interest rates in 2022. The stock has seen a significant decline, losing almost half its value from its 2022 highs. However, this downturn has resulted in an attractive dividend yield of 5.6%. For income-focused investors, this presents an interesting opportunity, especially given the stability of the company’s dividend payments.
In its recent second-quarter report, Northland Power showcased impressive financial metrics. Sales surged by 17% year over year, reaching $1.3 billion, while gross profit climbed 19% to $1.2 billion. Operating income also saw a notable increase of 33%, amounting to $498.2 million. Adjusted EBITDA, a key cash flow indicator, jumped 24% to $722.1 million. These figures paint a positive picture of the company’s resilience and operational efficiency.
A historical perspective on dividends
While Northland Power does not frequently increase its dividend, it maintains a monthly payout that has remained stable or even grown each year since at least 2012. Many investors do enjoy monthly dividends for better income planning.
Priced at $21.51 per share at writing, the monthly dividend stock appears to be undervalued by around 27% according to the analyst consensus estimate. If Northland Power can bring its construction projects online as planned, there is potential for significant upside for its share price.
The Foolish investor takeaway
While Northland Power faces market pressures, its strong operational fundamentals, diversified portfolio, and robust project pipeline create an interesting investment case. The 5.6% dividend yield offers an attractive incentive for income-focused investors. Ultimately, as Northland Power continues to expand its clean energy initiatives, it may very well emerge as a solid addition to a dividend-focused portfolio.
