We have initiated coverage of Polaris Infrastructure Inc. (Toronto: PIF) — a promising stock with a rating of "Buy" and a fair value assessment of $17.65 per share, explains Ryan Irvine, CEO of KeyStone Financial, and a contributing editor to Internet Wealth Builder.

Polaris is engaged in the operation, acquisition and development of renewable energy projects in Latin America. Currently, the company operates San Jacinto, a 72MW geothermal project located in Nicaragua, and a 5MW run-of-river project in Peru. The company is completing the construction of another 28MW of run-of-river projects, also located in Peru.

Polaris generates substantial free cash flow from existing San Jacinto project, with about 9.5 years of remaining life on the existing power purchase agreement. Recent acquisitions provide near-term growth potential, geographic diversification, and a platform for long-term expansion. The valuation of 11.3 times trailing earnings and 4.5 times trailing cash flow is attractive.

The key risk is that the company's principle asset is located in Nicaragua, which has been fraught with social and political unrest over the last year and was recently subjected to U.S. economic sanctions. As a result, country risk is high.

Meanwhile, the stock offers an attractive dividend yield of 5.9% underpinned by a sustainable payout ratio. There is potential for significant dividend growth once development milestones are achieved.

Polaris is a high-yield stock producing substantial free cash flow and trading at a very attractive valuation. The justified valuation multiple takes into account both the growth potential of the stock and the country risk associated with Nicaragua.

Financially, the company is performing very well and has recently made progress on diversifying its operations geographically through the acquisition of run-of-river power assets in Peru.

We are recommending Polaris because we believe it offers a unique opportunity in the Canadian market. There is substantial upside potential from the continued operation of San Jacinto and the advancement of the company's diversification strategy.

Although the country risk is high, we have no specific reason to believe that the operation of San Jacinto will be disrupted. However, it is a possibility to consider, which is why we place the stock in our Aggressive-Risk category. It covers companies with higher risk (and return potential).

We suggest taking a 3+ year time horizon on Polaris and weight position sizes appropriately (in consideration of individual risk tolerance).

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