Capstone Infrastructure (CSE-T)

(A Top Pick Dec 1/15. Up 35.67%.) A take over in January 2016.

Is the offer to buy a decent one? Expects the deal will go through. The company owns Bristol Water in England, so it makes it more attractive to a European company. They also have some good assets here. He is happy to sit with this. If it goes through, it should go within 6 months and 4%-5% is what your return is. Plus, you will still get one more dividend.

Going through a strategic review, but they are going to generate cash flow no matter what. He really likes this company. One of the few utilities that he has kept for the interest rate.

Just announced they are putting themselves up for sale. Thinks they can get a price between $4.50 and $6, which would be BV. The utility sector and infrastructure is hot. The company who takes them over can stop paying the dividend, which is about $30 million a year the company can pocket. They won a $25 million lawsuit against Ontario. It is being appealed, but there is a good chance that if you have already won, you will win again. They got a settlement on their Bristol Water plant in Britain.

(Market Call Minute.) Good on a price momentum basis, bad on an ROE and value basis. Big yield, but he wouldn’t feel safe in owning it.

This is on his Buy list. They’ve had some headwinds. A major problem is that the payout ratio is very high and is not sustainable. They have enough money in the bank to cover this for the next couple of years. They won a $25 million lawsuit against the Ontario government, which is currently under appeal. They have to get down their payout ratio.

(A Top Pick Aug 26/14. Down 22.64%.) Their co-generation plant in Belleville was working full time, but now it effectively is on retainer. It is a backup plant, which hurts the cash flow. They have Bristol Water in Britain and the government regulator knocked down the price the company was going to get by 5%, and is going to go down another 20% for the following 4 years. The company is appealing and hopefully will get a rate increase. Payout ratio is very high at over 100%, so obviously not sustainable. Have about $62 million in the bank, so they feel they can pay it for the next couple of years, and then will get down to about a 70%-80% payout ratio. Dividend of almost 10% is holding up the stock price, and he doesn’t think they will cut the dividend in the near future.

This company has a lot of green clients that care for green energy, and these guys are definitely the leader. The stock is down quite a bit, so it is a great entry point. Good dividend at 9.77%. His company has it with a $3.50 target.

Management has indicated the dividend is secure, although the payout is over 100%. They expect it to be over 100% for the next 2 years. Have over $60 million in the bank to cover it. Thinks the dividend is reasonably secure. Bristol Water is their investment in England, and the regulators said they were going to lower the payout by about 20%. Capstone is appealing that and there could be a decision in the next month or 2. He is happy to hold this. It is on his Buy list, but he can see where there could be some tax loss selling. Dividend yield of 9.5%.

(Top Pick May 23/14, Down 20.33%) Management still has confidence in the company. Their payout ratio is over 100% and they can only handle paying the dividend for two years. It remains on the buy list. Long term it has potential to do well.

He had an okay rating on it and then cut it. Now the worst is over. It is one of those ones that is interesting as a potential dividend stock and as a takeover target. Management has not been that good so he is not going to pound the table.

(A Top Pick May 23/14. Down 8.92%.) One of the problems they had was Bristol Water in England. The regulator there said they had to cut rates. The company has gone back trying for a new resolution. They have had difficulty for a period of time, but he thinks they have turned the corner. Nice dividend. He thinks the end play might be a takeover from another infrastructure company.

This owns and operates several different power generation assets including hydro, thermal, wind and renewable. Has quite a high dividend yield of about 8.5%. Payout ratio on an AFFO basis is about 100%, which will stay there till about 2017 until 80 MW of assets comes on line. He generally does not like to own businesses with a high payout ratio, but he thinks they can manage this. They have Bristol Waters in the UK, which is a regulated business. It was recently given a tariff pricing, and Capstone rejected this because it was too low. This is a bit of a risk. He doesn’t like businesses that have a high payout and low visibility on growth and a leveraged that he is generally not comfortable with.

(Top Pick Apr 4/14, Down 2.18%) The regulator came in and said they would lower prices in England. But they said the dividend will keep going. Lots of cash in the bank.

One of the main reasons he bought this was the dividend. They have taken a couple of hits lately. The Cardinal plant is now on a recycling basis. Also, Bristol Water in England lowered the price to consumers on the upcoming year and then goes lower for the next 4 years. This means there is less of payout to Capstone, whose payout ratio is about 130 and they are targeting 80%. They have to get the payout ratio down and have some projects coming online which will certainly help. Management feels the dividend is safe. Feels there is a reasonable possibility this company could get taken out.