A global liquefied natural gas (LNG) glut, declining gas prices, project permitting stalls, and coronavirus concerns are only a few of the factors that have been weighing on energy markets and the companies within the underperforming sector.
But a Canadian pipeline builder, an LNG player, and a renewable fuel business could still be great additions to your portfolio.
Image source: Getty Images.
New projects boosting cash flow
Enbridge (ENB 0.05%) seems like a good buy right now based on management's recent actions to shore up the company's financial footing and new projects put into service.
Over the past year, the Canada-based oil and gas pipeline operator company has underperformed the S&P 500, up roughly 15 percentage points. The company's full year 2019 results may not have seemed great on the surface, as revenue declined slightly year-over-year and adjusted EPS was flat. But the standout metric for Enbridge was its distributable cash flow (DCF), which increased to more than $9.2 billion from more than $7.6 billion in 2018.
The company also reaffirmed this year's DCF guidance in the range of $4.50 to $4.80, as well as its longer term 5% to 7% DCF per share growth outlook.
Enbridge's management attributes its recent improvement to a focus on a "low risk pipeline-utility model," following through with asset sales, completing a three-year balance sheet strengthening plan, and putting $9 billion of new revenue-producing assets into service over the course of the year.
The company is an attractive option for the income investor, with a dividend yield at more than 5.7%, and the company's plan to increase its dividend by 9.8% for 2020. It is important for investors to note, however, that despite recent improvements, there is significant work remaining, since the company's debt-to-equity ratio stands at more than 94%.
Partnership de-risks the LNG play
Cheniere Energy Partners (CQP) is the operating partner of Cheniere Energy (LNG 0.10%), a developer of LNG export projects in Texas and Louisiana. Cheniere is the marquee name in the US LNG export game in terms of scale and its early mover status on getting projects built and running.
Investing at the partnership level rather than the Cheniere Energy level may be preferable for some investors because it pays a dividend, recently yielding nearly 7%, and it distances them from project construction risk carried by the general partner as it continues to expand its facilities.
Shares of Cheniere Energy Partners were down roughly 15 percentage points over the past year, as earnings disappointed investors. Revenue declined slightly year-over-year for the third quarter, and earnings per share fell to $0.16 from $0.60.
Even so, the company outshined its general partner, Cheniere Energy, which posted a loss. Cheniere's management said that even though it sells the majority of its LNG under long-term "take-or-pay" contracts, the loss was linked to changes in fair value of derivatives, and the company should be expected to experience gains and losses associated with the underlying commodities related to forward gas contracts.
In late January, the company said it would pay a cash distribution of $0.63 per share, which works out to $2.52 annually, within its guidance in the range of $2.55 to $2.65 for the year.
It is important for investors to note, however, that Cheniere Energy Partners continues to carry a high debt burden, with a debt-to-total capital ratio of more than 96%, and this can be expected to remain as long as projects remain in construction. The company has a solid record of opportunistically seeking refinancing in recent years, however, and has made progress in getting better terms.
Renewable fuels gaining traction
Clean Energy Fuels (CLNE -0.76%) provides natural gas fuel and renewable natural gas fuel for the transportation industry in the U.S. and Canada, with a network of approximately 540 stations across North America that its owns or operates.
The company is seeing sales pick up on its Redeem renewable commercial vehicle fuel, which saw a 30% boost in deliveries for 2019. It also got positive news when the federal production tax credit for renewable energy was extended at the end of last year.
Sales acceleration did not translate into higher earnings in the third quarter, but analysts are hoping for better news when the company posts fourth quarter results.
Station construction revenue was $6.4 million for the third quarter of 2019, compared to $9.4 million in the comparable 2018 period. Revenue associated with higher volumes was offset by lower fuel prices, the company said, due in part to lower natural gas prices.
Analysts are expecting the company to swing to profitability this quarter, however, with a mean estimate of $0.16 per share.
Clean Energy Fuels has outperformed the S&P 500 over the past year, up more than 40 percentage points, and has had some important customer acquisitions, as in the case of its seven-year contract with UPS (UPS -0.20%) for 170 million gallons of fuel for its fleet of heavy-duty trucks.
The company does not yet pay a dividend, but has the potential to be a great growth play, particularly if corporations continue to increase their use of renewables and work to decrease their carbon footprints, as they have in the case of corporate renewable power.
