Hannon Armstrong: A Sustainable Investment

08/06/2020 5:00 am EST


Genia Turanova

Lead Analyst and Editor, MoneyFlow Trader

Renewable energy is likely in the early stages of a long-term boom. Technological progress has made the costs of both solar and onshore wind decline sharply and to make them highly competitive, asserts Genia Turanova, dividend expert and editor of Unlimited Income.

My favorite way to play the renewable energy trend is Hannon Armstrong Sustainable Infrastructure Capital (HASI). Officially classified as a specialty REIT, the stock is a bit of a hybrid between a bank and a green energy company — with a fantastic combination of huge growth potential plus an established dividend.

At its core, it’s a financing company. It invests in projects and services focused on energy efficiency, renewable energy, and other sustainable infrastructure markets. You can also think of HASI as an alternative energy company, since it has financial interests in energy projects that will pay off over many years.

Like any REIT, HASI is legally required to distribute at least 90% of its taxable income to shareholders as dividends. The company has a solid track record of increasing its dividend.

Over the past six years, HASI’s quarterly dividend grew from $0.22 to $0.34 (a 55% increase), although this rate of increase has slowed in the past years. Based on current prices, the stock has an annual yield of around 4.5%. 

Hannon Armstrong is in the perfect position to benefit as demand for sustainable investments continues to surge. The company’s investments are good for the end-users, for the economy, and the environment. Its projects help lower energy costs while upgrading our aging and inefficient infrastructure.

It’s also worth noting that Hannon Armstrong is relatively insulated from the business-slowing effects of COVID-19. Its projects focus on renewable energy and energy-efficiency assets — stable businesses that are considered essential. In other words, it’s not involved in any personal-service businesses (like restaurants and casinos) that could be shut down for months to come.

With a total portfolio that exceeds $2 billion dollars, the more HASI grows, the larger its capital base becomes… and the more opportunities it can address. Over time, HASI should be able to grow profits at a double-digit or high single-digit rate. This growth will translate into higher dividends for investors.

And the stock is pretty cheap at current levels, based on two common metrics: price-to-earnings (P/E) and price-to-book (P/B). Over the past few years, HASI steadily grew its profits and its book value, making the stock inexpensive at current levels.

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