A field of operating solar panels located in Ontario, owned and operated by Northland Power Inc. Northland slashed its monthly payout by 40 per cent on Nov. 13 in an unexpected move that shook up the market.JOHNNY C.Y. LAM/The Globe and Mail
The case for investing in Toronto-based Northland Power Inc. NPI-T used to rest on its stable and rising dividend, driven by long-term contracts tied to the company’s expansive renewable energy assets.
But new leadership is appealing to investors to stick with the sinking stock as the company pivots from the certainty of steady monthly payouts to a nebulous future of ambitious global growth aspirations.
Is this a pivot worth betting on?
Current investors, shocked by events over the past week, may need some convincing.
Northland slashed its monthly payout by 40 per cent on Nov. 13 – a move the market did not see coming.
The share price fell 27 per cent on the news. It has since slumped even lower as some investors wonder why the company failed to provide advance warning about the dividend.
Others wonder why Northland couldn’t satisfy its financial requirements by issuing more shares when its stock was rallying earlier this year.
And others might see the dividend cut echoing a similar move by Algonquin Power & Utilities Corp. AQN-T, another former dividend darling with green credentials.
The utility and renewable energy generator slashed its dividend twice, starting in 2023. But rather than signalling growth, the cuts acknowledged deep financial challenges that led to the decision to sell its renewable energy assets last year.
Although Algonquin’s share price has rallied more than 30 per cent this year, it is still down more than 60 per cent since 2021, when the renewables sector was riding high on investor enthusiasm.
Northland is pursuing a different path by appealing to investors with the upside of a smaller dividend commitment.
By preserving cash, it can maintain its investment-grade credit rating and have more capital to pursue opportunities as demand for electricity soars and governments bolster domestic energy security.
“AI data centres, EV adoption, rising air conditioning demand, continued industrialization, electrification of systems – this is all contributing to long-term demand growth,” said Christine Healy, Northland’s chief executive officer, during the company’s investor day presentation Thursday.
The plan is to double Northland’s operating capacity to about seven gigawatts within the next five years, through development and acquisitions that will require about $6-billion in capital.
This expansion is well under way, with 2.2 gigawatts of additional capacity already under construction. The biggest project: an offshore wind farm called Hai Long that will feed into Taiwan’s electricity grid when it is completed in 2027, after delays.
But Northland can see plenty of other opportunities on the horizon, in the form of additional wind farms and battery storage. Even natural gas infrastructure, which Ms. Healy believes is a key to the long-term energy transition from fossil fuels to renewables, is on the table.
Poland is one geographic focal point. The country is largely dependent on coal for electricity generation but is developing cleaner renewables as its economy expands and modernizes.
Northland is developing a Polish offshore wind farm in the Baltic Sea, expected to be completed next year. On Thursday it announced a deal to acquire two battery energy storage systems in the country.
The company also sees compelling growth opportunities in Spain, the U.K. and Canada, where the commitment to developing renewable energy infrastructure is strong. Over the longer term, Asia is another region where it believes it can expand.
Investors still smarting over the dividend cut might be understandably angry about exchanging stable monthly income for an uncertain future that comes with development risks and possible government U-turns.
But Northland’s pivot ties into rising investor interest in the renewables sector, even as the Trump administration encourages the development and use of fossil fuels.
The iShares Global Clean Energy ETF, which tracks wind, solar and hydroelectricity stocks, has rebounded 42.5 per cent this year – suggesting that investors are betting the growth trajectory for renewables is enticing.
Northland’s beaten-up stock is an outlier to this broad rally, which means it could appeal to investors as an out-of-favour name that trades at a significant discount to other independent power producers.
Mark Jarvi, an analyst at CIBC Capital Markets, said in a note last week that this discount is larger than the one experienced by Innergex Renewable Energy Inc. – that is, before the Canadian company was snapped up by Caisse de dépôt et placement du Québec earlier this year at a 58-per-cent premium.
No doubt, many Northland investors are sore about last week’s surprise dividend cut. But this stock is by no means dead.
Editor’s note: A previous version of this article incorrectly stated that Northland pays a quarterly dividend. The dividend is paid monthly.