Crius Energy Trust: A High-Quality Utility With An 8% Yield & Monthly Dividends - Sure Dividend Sure Dividend

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Crius Energy Trust: A High-Quality Utility With An 8% Yield & Monthly Dividends


Published by Bob Ciura on September 14th, 2017

Investing in high-yield dividend stocks can be hazardous to one’s wealth. High yields of 8% or more look extremely attractive on the surface, but can end badly if the company in question cannot afford to pay the dividend.

As a result, it is very important for investors interested in high yields, to make sure the payout is sustainable.

Crius Energy Trust (CRIUF) has a current dividend yield of 8.6%. It is one of 402 stocks with a 5%+ dividend yield. You can see the full list of established 5%+ yielding stocks here.

Fortunately, Crius generates enough cash flow to pay the dividend. And, it passes along frequent dividend increases.

In addition, Crius pays a monthly dividend. Monthly dividend stocks offer added bonus for investors who want to be paid more frequently. Sure Dividend has compiled a list of stocks that pay dividends each month, which you can access below:
 

This article will discuss Crius’ business model, growth prospects, and whether it is a good investment for dividend income.

Business Overview

Crius operates as a trust. It is a utility, and is based in Canada. It also has significant operations in the U.S., in 19 states and the District of Columbia. It has a presence in Australia as well.

The company sells electricity, natural gas, and solar energy to over 1.3 million residential customers. It also services commercial customers. Approximately 62% of Crius’ customer base is residential, with the remaining 38% commercial.

Its energy products and services include fixed and variable contracts, and renewable energy.

CRIUF Overview

Source: Q2 Earnings Presentation, page 7

Crius is a diversified energy company. It has access to strong traditional utility operations, which generate steady profit for the company. In addition, it also has exposure to a growing renewable energy industry.

This has fueled significant growth for Crius. In the past four years, revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 14% and 24% per year, on average.

Crius had a great year in 2016, as total revenue increased 8.4% in 2016, to $743.8 million. Growth was the result of a 20% increase in customer base, as well as increased volumes, which led to 15% growth in adjusted EBITDA.

Crius is off to a good start to 2017. Total revenue increased 6.6% in the second quarter, to $180.2 million. Growth was primarily attributed to a 19% increase in solar revenue, due to installation of new solar systems.

Adjusted EBITDA and distributable cash increased 3.6% and 21%, respectively, last quarter.

Growth Prospects

Crius operates primarily in the deregulated segment of the utility sector, which the company believes gives it an opportunity to profit from industry consolidation. A key component of the company’s growth strategy is acquisitions.

Since its IPO, Crius has added over 700,000 customers through mergers and acquisitions. This is an advantage of operating on the deregulated side of the industry–it allows for aggressive acquisitions, from which Crius can generate cost synergies to grow earnings.

CRIUF Acquisition

Source: Q2 Earnings Presentation, page 10

Building on its aggressive acquisition strategy, Crius recently announced the acquisition of U.S. Gas & Electric Inc., for an aggregate purchase price of $172.5 million.

Crius paid 4.7 times trailing-12-month EBITDA for U.S. Gas & Electric, which is a good sign that it did not overpay. And, the acquisition keeps Crius’ debt within reason. After the acquisition, the company has a pro-forma leverage ratio below 1.0.

The acquisition provides significant growth to Crius, which will see pro-forma revenue and adjusted EBITDA increase by 35% and 59%, respectively. The deal adds over 370,000 new customers for Crius.

Crius expects the acquisition to be significantly accretive to earnings, thanks to growth and cost synergies. The deal is expected to result in 16% growth in distributable cash.

There should be plenty of future growth for the company, through organic investment as well as acquisitions. The company plans to continue pursuing accretive acquisitions to grow its customer base.

And, solar is still an exciting growth catalyst. Last quarter, Crius sold 258 solar systems, representing 1.8 megawatts of generating capacity.

Continued growth will help the company keep raising its dividend.

Dividend Analysis

For companies based outside the U.S., investors should translate dividends back into U.S. dollars. Since Crius is based in Canada, the dividend payout will fluctuate, based on prevailing exchange rates.

Based on the current exchange rate between Canadian dollars and U.S. dollars, Crius has an annual dividend payout of approximately $0.66 per share.

In addition, investors should consider withholding taxes when analyzing international stocks. Dividends received from Canadian stocks are typically subject to a 25% withholding tax.

The good news is, there is a way for investors to avoid the withholding tax. There is an agreement between the U.S. and Canada that allows for investors to incur no withholding tax, if the stock is held in a qualified retirement account.

Crius has a high dividend yield of 8.6%. A dividend yield this high, can sometimes be a red flag. High dividend yields can result from a plunging share price, which typically occurs when the business is deteriorating.

Fortunately, Crius’ dividend appears to be sustainable. Crius had a payout ratio of 58% in 2016. It has maintained a 59% payout ratio in the last 12 months, through the end of the second quarter.

Once the U.S. Gas & Electric acquisition is completed, Crius expects its payout ratio to decline even further, to 53%. This low of a payout ratio also leaves room for dividend increases.

Since the beginning of 2016, Crius has increased its dividend by 12%. It has stated a plan to raise the dividend 2% per quarter through 2017.

Final Thoughts

Investors should approach extremely high dividend yields with caution. Stocks with 8%+ dividend yields are often in financial distress. Fortunately, in this case the dividend appears to be sustainable.

Crius operates traditional utility assets which generate healthy EBITDA. It also is building its business in one of the premier growth catalysts in the energy industry, which is solar power.

Crius generates enough cash flow to pay its current dividend, with potential for small dividend increases on occasion.

Crius has a lot of appeal for its dividend, both in terms of the yield itself, but also because it pays monthly dividends. As a result, Crius could be appealing for income investors.

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