Enviva (EVA) trades at $31.78 per share. This company makes wood pellets utility providers burn as a clean substitute for coal in the quest to generate affordable and clean energy. The vast majority of Enviva’s customers are in the United Kingdom and Europe. Enviva’s wood pellets are provided through fee-based contracts that extend across several years. The purpose of this transactional format is for the company to have a reasonable idea of its cash flow across posterity. The proceeds are partially used to pay about an 8% dividend.
Reading through this, a casual investor may not think about napping a share. It’s not the sexiest business in the world — but that’s arguably exactly what makes this stock valuable.
Enviva is Prepared for the Future
Investment analysts far and wide agree Enviva will enjoy considerable growth in the years ahead. Price hikes on current contracts and expansion efforts at some of the company’s legacy assets will likely increase cash flow between 7% and 10% per year across the next half-decade.
It is also possible Enviva will add a significant number of wood pellet processing plants in the years ahead. Enviva’s parent company is currently developing export terminals. According to Enviva executives, such power sources are likely to double earnings within two years. The question is how, exactly, Enviva will finance such growth as it pays about 80% of cash flow to support distribution. If the unit price decreases, the company will not issue equity to finance drop-downs transactions. This is precisely why prospective investors should closely watch Enviva in the months ahead to gauge whether the company is capable of financing its lofty growth goals. If Enviva leaders explain exactly how they will finance ensuing growth, the stock will likely increase by a considerable margin.
One thing is for certain: the world economy will dump copious amounts of cash into developing and perfecting renewable source of energy in the years to come. The goal is to eventually transition away from fossil fuels to sustainable sources of energy. In other words, Enviva and its entire sector are likely to grow by leaps and bounds in the years and decades to come.
Is Enviva the Dividend Stock You Have Been Looking For?
The fact that Enviva pays a dividend is meaningful in its own right. If you are nearing retirement age or risk-averse, Enviva is definitely worth consideration simply because of its 8.2% dividend payment. The company is likely to make good on this dividend promise for the foreseeable future as it has the wood pellet market cornered in the southeastern portion of the United States. The company’s wood pellets are coveted by businesses based in foreign nations that have comparably strict green house as emission standards.
As noted above, Enviva strictly does business with groups willing to agree to long-term contracts. The company has maximized operational efficiency to make good on its dividend promise. In particular, the company has prudently positioned its plants near areas where timber is regularly harvested as well as the Gulf and Atlantic Coast deep water docks. However, it must be noted a fire at an Enviva port this past year caused some investors to question whether the company’s dividend will prove sustainable across posterity. Thankfully, Enviva made enough money in the quarters that followed to pay the dividend in full.
Buy, Sell or Hold?
At the moment, Enviva’s average contract length is 9.4 years. This is quite lengthy yet there are not that many other suppliers of the in-demand wood pellets desired by utility companies across the world. Enviva bears argue there are plenty of renewable sources of energy that will eventually replace wood pellets. As an example, solar and wind power have the potential to become increasingly important as we progress into a future in which environmental sustainability is in question.
If Enviva customers fail to renew their contracts in the years ahead, it is a sign the company is losing ground to competitors as well as those who provide competing sources of energy as noted above. However, just about every business on the planet will be forced to reduce its greenhouse gas emissions in the years and decades to come. Wood pellets will be here for the foreseeable future so Enviva is in the perfect position to profit from the green movement. Buy Enviva today, hold it until it looks like superior alternative forms of energy are emerging and you will likely make a bundle of money.
Regards,
Ethan Warrick
Editor
Wealth Authority
