See You Later, Hannon Armstrong

Sustainable infrastructure financier Hannon Armstrong (NYSE:HASI) is not in my Ten Clean Energy Stocks model portfolio for the first year since its IPO in 2013. I still love the company and its business model, but I have become concerned about its short term prospects.

Dividend Disappointment?

In my last update on the 2017 portfolio, I wrote:

Sustainable infrastructure and clean energy financier Hannon Armstrong reported earnings on November 1st. The headline numbers were lower than expected, but for a very good reason. The company has spent the last few months locking in low interest rates by refinancing its floating rate debt with fixed rate debt. The company has a 60-85% target for fixed rate debt as a portion of overall debt, but the recent issuance brought this ratio to 93%.

Since fixed rate debt bears a higher interest rate than short term debt, the increased interest payments reduced Core Earnings, and will likely do so for several quarters going forward. Although management insists that they are still looking at divided growth going forward, it now looks as if 2017 Core Earnings will be slightly below the current $1.32 per share annual dividend payment. The company has raised its dividend by at least 10% every December since it went public, but this December I expect the increase to be much more modest, probably by only 1 cent (3%) to $0.34 a quarter or $1.36 annually.

December came, and management decided to kick the can down the road. On December 12th, HASI declared an (unchanged) $0.33 dividend for the fourth quarter, but delayed a decision on dividends for 2018. Said President and CEO Jeffrey Eckel

“We have decided to move our annual dividend review to the February 2018 Q4 earnings call to coincide with our year-end results and outlook for 2018. Our pipeline remains strong and we remain focused on growing the business.”

To me, this means that the company knows that if it raised its dividend in a prudent manner in December, it would disappoint investors. By delaying the decision by three months, it is buying time to grow the business by 2 to 5 percent in the interim. Note that Hannon Armstrong does not typically announce its deals publicly, so we will not know how much the business grew until the earnings announcement.

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Disclosure: Long HASI





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