Boralex shares are up about 30 per cent over the past year, but the threat of rising interest rates will be a risk for Boralex going forward.Jean-Francois Lemire
A long-awaited decision to start paying a dividend is shining a spotlight on Quebec-based renewable energy producer Boralex Inc.
Investors will begin to receive a quarterly payout yielding about 4 per cent starting next week, and analysts believe the stock will keep rising as the power company expands its footprint.
Boralex develops and operates wind, solar and hydroelectric power plants in Canada, France and the northeastern United States.
The company will begin paying its first quarterly dividend of 13 cents a share on March 17, joining a long list of power companies offering shareholder payouts.
The company said its stronger cash position, steady cash flow and long-term contracts justified the payout, which came earlier than many expected. It's also expected to draw more investors to the small-cap name.
"I think the stock has been overlooked in the past because it's relatively small and hasn't had a dividend. When you're a utility company that doesn't pay a dividend, you're likely to be orphaned," says National Bank Financial analyst Rupert Merer.
"I think the investment community is still getting up to speed on this company."
Mr. Merer is one of five analysts to have a "buy" on the stock, while two recommend it as a "hold," according to S&P Capital IQ. Scotia Capital analyst Tuc Tuncay called the dividend "transformative" for Boralex and expects it will grow by about 15 to 20 per cent in 2016, as more of the company's projects come online.
Boralex said in the past it would look at paying a dividend after the start-up of the first phase of its Seigneurie de Beaupré wind project in Quebec, which happened in December.
That project, the largest ever completed by Boralex, helped the company increase its installed capacity by 37 per cent to 652 megawatts in 2013. It has a number of other projects slated for commissioning over the next two years.
Boralex stock started to gain momentum in late December and has increased by about 20 per cent so far this year. It hit a 52-week high of $13.47 on Feb. 19, when the dividend announcement was made.
Boralex joins the ranks of other dividend-paying renewable energy companies such as Algonquin Power & Utilities Corp., Atlantic Power Corp., Brookfield Renewable Energy Partners LP and Innergex Renewable Energy Inc.
Boralex shares are up about 30 per cent over the past year, outpacing most of its peers. The threat of rising interest rates tends to weigh on dividend-paying utility firms because they are viewed by investors as yield plays. It will be a risk for Boralex going forward.
The stock has a lower valuation than its peers, but analysts believe the dividend will narrow that gap. Many recently hiked their 12-month price targets as a result.
The average price target among analysts is now $14.86, according to S&P Capital IQ.
Desjardins Securities analyst Jeremy Rosenfield has a "buy" on the stock and recently raised his target price to $15 from $12, saying the dividend will create "positive momentum" and should attract new investors.
BMO Nesbitt Burns Inc. analyst Ben Pham raised his price target to $14 from $12.50 and said the dividend "elegantly balances [the company's] near-term need for internal capital to fund growth against investor thirst for yield in the current market context."
Still, he maintained his "hold" rating, as did RBC Dominion Securities Inc. analyst Nelson Ng.
Mr. Ng. cites "short-term overhang" of $245-million of convertible debt. However, he raised his target price to $14 from $12.
Andy Nasr, senior portfolio manager at Middlefield Capital Corp. says his firm bought the stock last fall in anticipation of the dividend and because it was cheaper than its peers.
"It's a combination of the valuation and growth profile," he says.
Editor's note: An earlier online version of this article misspelled Mr. Tuncay's name. This version has been corrected.