Enviva Inc. (EVA) is an investment where money literally grows on trees. This company is the largest producer of wood pellets in the world, and it ships them to countries looking to transition away from using coal for their energy needs, explains Rida Morwa, editor of High Dividend Opportunities.
Sustainably sourced wood pellets are considered carbon-neutral even after considering the entire supply chain. They have been proven to reduce greenhouse gas emissions by up to 85 percent on a lifecycle basis compared to coal. EVA establishes long-term take-or-pay contracts with credit-worthy customers from leading economies and passes on shipping costs to them.
EVA currently has a $21 billion worth of Take-Or-Pay contracted backlog with a weighted-average remaining term of 14.5 years. During Q1 2022, EVA reported adjusted EBITDA of $36.6 million and $25.3M of DCF (distributable cash flow).
The company declared a quarterly dividend of $0.905 per share, a 6.5% annualized yield. This payout represents a 15.2% YoY growth, and it is noteworthy that EVA has a stellar track record of 26 consecutive quarterly dividend hikes since its IPO in 2015. EVA's current quarterly dividend is 3.5x higher than the one they issued during their IPO, indicating that the company is a solid dividend-growth investment.
Note: Enviva Inc. has eliminated the pesky schedule K-1 by pursuing a transformation into a C-Corp. The company now pays Qualified Dividend Income ('QDI') that is eligible for favorable taxation.
As part of its transition from an MLP, the incentive distribution rights held by its former sponsor were canceled and eliminated. This means the DCF is fully accessible to the common shareholders. EVA projects ~$35M-$40 million in adj. EBITDA for Q2 and EVA's 2023 guidance show 28% higher EBITDA from FY 2022 due to increased production, higher-priced contracts, and reduced support payments to the former general partner.
EVA recently announced the issuance of a $250 million green bond and intends to use the proceeds towards the acquisition, construction, equipping, and financing of the company's fully contracted wood pellet production plant to be located in Epes, Alabama. EVA insiders have been accumulating shares through this bear market, indicating their confidence in the long-term value proposition.
This business is just getting started. EVA announced plans to double its production over the next five years to cater to the growing demand, as the wood pellet industry is expected to exceed $23 billion by 2028. Investors will continue to see growing dividends as the company expands its moat and caters toward global cleaner energy targets. (Disclosure: Rida Morwa has a beneficial long position in EVA.)