Investors wanting a stable, high-yield energy stock should take a look at small-cap diversified player Valener Inc., although analysts are cautious on its growth prospects.
Shares in the Montreal-based company, the investment vehicle in natural gas distributor Gaz Métro, have been fairly steady since it reorganized into a new corporation in late 2010. The stock rose a modest 5 per cent in 2014, trading between a high of $16.38 and low of $15.21.
The shares, now trading at around $16, also held steady during the most recent downturn in energy stocks, when many larger oil and gas companies saw their shares sink amid the drop in commodity prices.
Analysts say Valener is a less liquid stock and well diversified with its businesses distributing natural gas in Quebec and Vermont, as well as its newer investments in wind farms and more recently liquefied natural gas.
The main attraction to Valener appears to be its annualized dividend of $1 a share, which yields about 6.2 per cent.
"We like its consistency. Its steadiness and its dividend is pretty secure," said Ryan Modesto, managing partner at 5i Research, which has the stock in its model income portfolio.
He said Valener has a good geographic and renewable energy mix and believes its dividend payout could increase down the road, "making it more of an interesting investment for income investors."
Valener holds a 29-per-cent stake in Gaz Métro Limited Partnership. Gaz Métro is the largest distributor of natural gas in Quebec. Valener also owns gas and electricity distribution operations in Vermont and a 24.5-per-cent stake in Quebec's Seigneurie de Beaupré wind power project.
Valener said its profit for the financial year ended Sept. 30 increased by about 8 per cent to $36.7-million compared with a year earlier, a result of higher gas and electricity deliveries and the positive impact of a lower Canadian dollar.
The company is expecting future growth to come from recently commissioned wind power operation and a new joint venture with the Quebec government that will triple production capacity at its natural gas liquefaction plant in eastern Montreal.
Pierre Despars, chief financial officer at Gaz Métro, said the company is also more defensive because its earnings come mainly from regulated power generation and distribution businesses.
"When you look at Valener you look at a stable, predictable company with a high dividend yield," he said.
TD Securities analyst Linda Ezergailis has a "hold" and $17 price target on Valener, believing the long-term outlook is "favourable," largely from its Vermont utilities and Quebec wind projects.
"We believe that Valener's portfolio of high-quality, low-risk, regulated, long-life assets will produce stable operating cash flows for shareholders," Ms. Ezergailis said in a note. "Income-oriented investors seeking long-term stability of cash flows should find the company attractive."
Among four analysts that cover the stock, three have a "hold" or equivalent rating, while one says "sell," according to S&P Capital IQ. The analyst consensus price target over the next year is $16.75.
BMO Capital Markets analyst Carl Kirst has a $17 target and "market perform" (similar to "hold"), saying the company has a strong balance sheet and "regulated gas-weighted business profile in a weakening crude market."
RBC Dominion Securities Inc. Robert Kwan has an "underperform" on the name, (similar to "sell") and $16 target, saying the shares are trading at a premium to some other regulated utility stocks he covers.
"We see the shares as a reasonable investment for investors seeking a regulated utility investment with higher relative yield," he said in a note. "However, we do not expect Valener to materially increase dividends in the foreseeable future given the lack of earnings growth and the high payout ratio."