Covanta’s Q1: Ten Clean Energy Stocks For 2019

Covanta Holding Corp. (NYSE:CVA)
12/31/18 Price: $13.42.  Annual Dividend: $1.00. Expected 2019 dividend: $1.00.  Low Target: $13.  High Target: $25.
3/26/19 Price: $17.86. YTD Dividend: $0.25. YTD Yield: 1.9%  YTD Appreciation: 33.1% YTD Total Return: 34.9%

Leading waste-to-energy operator Covanta’s stock has been the second best performing holding in my 10 Clean Energy Stocks for 2019 model portfolio.  While in many ways the company is similar to the clean energy Yieldcos that dominate the model portfolio, it is different in that it develops its own projects, while most Yieldcos depend on a sponsor to develop projects which they buy at close to market prices.

A normal Yieldco depends on a strong share price or cheap debt financing to maintain its dividend per share growth.  Without cheap equity or debt financing, a Yieldco can grow in size, but the equity dilution or the cost of the financing prevent much of the new cash flow from flowing through to dividends.

Covanta is like a Yieldco in that it owns clean energy installations which, in Covanta’s case, are Energy-from-Waste (EfW) and metals recycling operations as opposed to the more typical wind and solar farms.  Covanta is unlike the typical Yieldco in that it develops most of its new operations in-house.

covanta rookery project

The growth potential of this strategy was on display in the company’s first quarter earnings call when management outlined the financial requirements of it’s Rookery Project in the UK, which it is developing with financial contributions of Green Investment Group (GIG) and Veolia (VEOEF, VEOEY, VIE.PA).  The project reached financial close in March and is expected to process around 545,000 metric tons of waste annually.

The Rookery Project has begun construction and is expected to begin commercial operations in 2022.  Once complete, Covanta will operate the plant under a long term contract, while Veolia will supply the majority of the waste.  Covanta and GIG will each own 40% of the project, while Veolia will own the remaining 20%.

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Disclosure: Long CVA, VEOEF.

Disclaimer: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current ...

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Alpha Stockman 1 year ago Member's comment

I'm long $CVA as well.