Meeting expectations

In the case of Infinis, its shares have risen by over 5% after it reported a strong first quarter of the year. For example, Infinis generated 586 gigawatt hours of power in the first quarter of the year, which is up from 572 gigawatt hours in the first quarter of the previous year. Furthermore, Infinis has been able to meet market expectations thus far for pricing and costs, which is encouraging news for its investors.

However, challenges could lie ahead for Infinis. For example, the government subsidies for renewable projects are due to change and the company is facing some uncertainty as it attempts to complete onshore wind projects in time to receive them.

Fast-track fracking

Meanwhile, IGAS’s shares have risen by over 8% today as the company received a boost from the UK government’s comments regarding the future of fracking. In fact, fracking will now be considered a national priority and, as a result, applications to engage in fracking will be fast-tracked so as to avoid the lengthy delays by local councils that have become a feature of the industry in recent years.

Looking ahead, IGAS appears to be on the right side of government policy. That’s because the Conservative majority government appears to be keen to embrace fracking because of the additional employment opportunities and tax benefits that it could bring. That’s especially the case since it appears likely that investment in the relatively uncompetitive North Sea oil and gas sector may decline over the medium to long term, as energy companies continue to cut back on capital expenditure and investment.

Under pressure

Infinis Energy, though, could struggle in the short run as the government is scrapping the exemption to the climate change levy and, partly as a result of this, the company’s bottom line is due to come under pressure in the next couple of years. For example, earnings are forecast to decline by 12% this year and by a further 3% next year.

This puts the company’s dividend under additional pressure, with shareholder payouts being roughly the same as net profit. As a result, it would be of little surprise for Infinis to cut its dividend over the medium to long term, although it is likely to remain a top income stock due to its present yield being a whopping 7.1%.

Preferred option

Looking ahead, IGAS has strong growth prospects. Its earnings per share are set to rise to 1.7p next year, which puts it on a forward price to earnings (P/E) ratio of 17.2. While this is higher than Infinis’ forward P/E ratio of 13.6, IGAS appears to have brighter prospects than its renewable peer and, with the government’s proposed opening up of shale resources in the UK, it stands to benefit to a significant extent from a more favourable operating environment.

So while both stocks appear to be worth buying, IGAS seems to be the preferred option at the present time.

The post Infinis Energy PLC Vs IGAS Energy PLC: Which Energy Stock Should You Buy? appeared first on The Motley Fool UK.

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However, the five companies featured in this article all offer a forecast yield of about 10%.

Can these companies can really deliver such high yields, or do painful dividend cuts lie ahead?

Vedanta Resources

Shares in Indian multi-commodity miner Vedanta Resources (LSE: VED) have fallen by nearly 40% since May, driving up the firm’s forecast yield to a remarkable 9.9%. Given that Vedanta is suffering from low commodity prices and has net debt of $10bn, I’d normally run a mile here.

However, Vedanta generated $1bn of free cash flow last year on revenue of $12.9bn. The group has good access to financing, and reported a cash balance of $8bn at the end of March.

Given that the forecast $0.65 per share dividend would cost less than $200m to pay, I doubt that it will be cut.

Infinis Energy

Shares in wind farm operator Infinis Energy (LSE: INFI) fell by 30% in July, after the Chancellor said that onshore wind farm operators would lose their exemption from the climate change levy.

Infinis said that the change is likely to reduce earnings by £7m this year and by £11m next year. The latest broker forecasts suggest that earnings per share could fall to 12.3p this year. That would leave the firm’s forecast dividend of 14.4p per share uncovered by earnings.

In my view, Infinis’s 10% yield is unlikely to remain safe, as this tax change has fundamentally altered the economics of the firm’s business.

Pan African Resources

Small cap gold miner Pan African Resources (LSE: PAF) has reported a post-tax profit every year since at least 2009.

However, according to a trading statement in June, lower gold mining grades mean that earnings per share for the financial year ending June 30 are expected to be between 0.54p and 0.84p, significantly below broker consensus forecasts of 0.96p.

Mining results are now improving, and the firm says that its dividend policy “is expected to be unaffected”. The forecast payout of 0.69p per share dividend gives a prospective yield of 10.8%. I think it’s risky but possible.

Anglo Pacific

Anglo Pacific Group (LSE: APF) earns royalty payments from mines in which it owns a stake. The shares have fallen by 50% since September, as earnings have disappointed.

However, despite forecast earnings of just 2.8p per share in 2015, the firm has committed to a medium-term dividend of 8p per share, moving to a policy of 65% of adjusted earnings in the future.

At 8p per share, Anglo shares provide a 9.7% prospective yield. However, at 65% of adjusted earnings, the yield could be somewhat lower.

GVC Holdings

Isle of Man-based GVC Holdings (LSE: GVC) provides internet sports betting and casino software for a variety of customers. It also owns branded operations such as Sportingbet.

GVC shares trade on just nine times 2015 forecast earnings and offer a forecast yield of 9.1%, rising to 10% in 2016. What’s most impressive is that based on last year’s figures, this payout could be covered by both earnings and free cash flow, making it quite safe.

However, GVC is in the middle of negotiating a £1bn offer for Bwin.party Digital Entertainment. It’s possible that this financial commitment could constrain GVC’s dividend payments.

The post 5 10%-Yielders To Consider: Vedanta Resources plc, Infinis Energy PLC, Anglo Pacific Group plc, Pan African Resources plc & GVC Holdings PLC appeared first on The Motley Fool UK.

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Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended GVC Holdings. The Motley Fool UK owns shares of Anglo Pacific. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

GlaxoSmithKline (LSE: GSK) is struggling with the increase in generic competition, as its major blockbuster drugs lose patent protection. Advair, GSK’s best selling respiratory drug, saw revenues fall 21% to £392 million in the first quarter of 2015, as it faced a fall in market share and pricing pressures.

Although its consumer healthcare and vaccines business is doing better, weakness from its pharmaceutical business continues to act as a drag on earnings. With adjusted EPS expected to fall another 16% this year, GSK can no longer afford to sustain further dividend increases. Management has said that it intends to keep its dividend at 80 pence annually until 2018.

They also expect adjusted EPS will grow in the mid-to-high single digits over in the five years from 2016 onwards. But, intensifying competition for Advair could offset the gains from the sales of new respiratory products. So, despite its 5.9% dividend yield, GSK is relatively unattractive.

SSE

Weaker wholesale electricity prices had weakened the margins of SSE’s (LSE: SSE) wholesale electricity generation business, and this trend is likely to continue as lower fuel prices will continue to exert downward pressure on wholesale electricity prices. But, it’s diversified generation mix should dampen the effect of lower wholesale prices, because its renewable capacity depends more significantly on government subsidies. In addition, it is set to benefit from the introduction of the capacity market in 2018/9.

SSE’s sizeable regulated networks business means that its earnings are generally more stable than other power generators. With a regulated asset value of £7.35 billion, its regulated networks business now accounts for just over half of the utility company’s operating profits. Its regulated asset base is also growing rapidly with the need for more investment to connect generation from renewable sources. This should enable SSE to deliver sustainable dividend growth. Its shares currently yield 5.6%

Infinis Energy

Renewable energy generator, Infinis Energy (LSE: INFI) has an impressive dividend yield of 9.3%. Lower wholesale electricity prices and less windy conditions last summer caused adjusted net income to fall 7.6% to 36.3 million.

As the business is highly cash generative, the company had sufficient free cash flow to fund its dividend payments and its capital investment needs in 2014. Its strong pipeline of new wind projects should mean that Infinis Energy’s dividend yield is sustainable in the medium term.

Infinis Energy has 43 MW of new wind plant capacity currently in construction, which will be mostly be unaffected by the withdrawal of the government’s Renewables Obligation subsidy for onshore wind farms. Even under the new contract for difference (CfD) regime, returns are still attractive; and Infinis Energy plans to continue to meet its 700 MW of renewable generation capacity target by 2017.

With a dividend yield of over 9%, Infinis Energy is an attractive income stock.

John Laing Environmental Assets

Structured in a similar way as John Laing Infrastructure Fund (LSE: JLIF), John Laing Environmental Assets (LSE: JLEN) invests primarily in in renewable energy, water treatment and waste management projects.

The fund targets an internal rate of return (IRR) of between 7.5% to 8.5%, and its fund manager currently charges a 1.0% management fee of the fund’s adjusted portfolio value. Even with the end of Renewables Obligation subsidy for onshore wind farms, the fund still has an attractive investment pipeline.

Its shares currently trade at a 4.3% premium to its net asset value (NAV), and yields 5.6%. The fund’s dividend is expected to grow in line with RPI inflation, but NAV growth is likely to be limited. This should mean that capital appreciation for the fund is also going to be limited.

The post 4 Shares Yielding More Than 5%: GlaxoSmithKline plc, SSE plc, Infinis Energy plc & John Laing Environmental Assets Group Lt appeared first on The Motley Fool UK.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Looking ahead, though, could Infinis outperform National Grid and SSE? Or, should you stick with the two larger stocks for the long run?

A Challenging Environment

While the Conservative majority win at the General Election was great news for SSE, with it meaning that Labour’s plans for a price freeze on domestic energy prices was not going to be implemented, it could be viewed as bad news for Infinis. That’s because doubts continue to surface regarding the future of onshore wind power, with the Conservatives apparently less likely to allocate spending towards renewable forms of energy (for example, in the form of subsidies) than their Labour or Lib Dem counterparts. As such, investor sentiment in Infinis, which has been weak throughout recent months, could reduce further and put the company’s share price under pressure.

Stability

Clearly, Infinis is a different beast to National Grid and SSE. While they offer a vast amount of stability, consistency and robust financial performance, Infinis remains a relatively volatile performer. For example, it posted a pretax loss of £28m in financial year 2014, which provides evidence that its outlook is subject to major change and political risk.

Meanwhile, SSE and National Grid are very stable businesses and continue to deliver bottom line performance that, while not always providing growth, is nonetheless consistent and allows them to be viewed as relatively safe places to invest.

Income Prospects

While National Grid and SSE are superb income stocks, even their yields are surpassed by that of Infinis at the present time. For example, while National Grid’s yield is 5.2% and SSE’s is 5.6%, Infinis’ yield of 9.6% is head and shoulders above them.

However, Infinis’ yield is far less sustainable than either National Grid’s or SSE’s. That’s because Infinis currently pays out far more in dividends than it generates in profit, with its dividend payout ratio being 140%. Clearly, this is unsustainable in the medium to long term, so it means that Infinis will need to either cut dividends or else increase profit at a rapid rate so that dividends are covered by its bottom line. And, while it is expected to increase its earnings by 7% this year and by a further 10% next year, it still leaves dividend payments at a level that appears to be unaffordable.

Looking Ahead

While National Grid and SSE offer excellent yields, a sustainable dividend, are consistent performers and trade on very appealing valuations (they have price to earnings (P/E) ratios of 14.7), they do not offer the long term growth potential of Infinis. And, with renewable energy fast becoming more mainstream and more popular, Infinis’ bottom line could move significantly higher in the long run.

Furthermore, Infinis trades on a relatively appealing valuation, with it having a P/E ratio of 14.7, and impressive growth prospects. In addition, it has a high, albeit unsustainable yield, and although its short to medium term future is uncertain regarding government policy on renewables, it seems to be well-placed to benefit from a renewables-tailwind. As such, it seems to be worth buying, but not ahead of National Grid or SSE.

The post Is Infinis Energy PLC A Better Buy Than National Grid plc And SSE PLC? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of National Grid and SSE. The Motley Fool UK has recommended National Grid. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Conventional utilities such as SSE (LSE: SSE) Centrica (LSE: CNA) and National Grid (LSE: NG) (NYSE: NGG.US) ‘only’ yield between 4.5% and 5.5%. Should I dump these lumbering giants from my portfolio and invest in Infinis?

Not so fast

A quick calculation tells me that the 18.7p cash dividend Infinis is forecast to pay this year would cost the firm £56m. That’s 30% more than the £43.3m Infinis is expected to report in post-tax profits.

It was a similar story last year, when Infinis paid 18.3p per share, or £55m, to shareholders, despite reporting earnings of just 6.9p per share.

In fairness, last year’s £55m dividend was almost covered by free cash flow, which totalled £53m. However, this was only because of a one-off £20m gain from the sale of the company’s hydro-electric assets. Free cash flow from continuing operations was only about £33m.

A big IPO clue

Infinis floated on the London Stock Exchange in November 2013. Prior to this it was owned by Guy Hands’ well-known private equity firm, Terra Firma, which remains the controlling shareholder with a 70% stake.

Private equity firms are well-known for selling at the top. The firm’s shares have performed poorly since joining the stock market, falling by 30% from an initial price of 269p to today’s price of 188p.

I suspect that the generous dividend is the result of pressure from Terra Firma, which will want to extract as much cash as possible from Infinis while it remains a controlling shareholder.

3 reasons not to buy

The firm’s 2014 results highlighted three factors that have discouraged me from investing in Infinis.

1. Oil prices

Infinis warned that the fall in oil prices “has resulted in lower gas and wholesale power prices”.

This has not been a big issue so far, but Infinis says that if oil prices remain at current levels for a number of years, “this will have an adverse impact on the performance of the Company”.

I believe oil prices are likely to remain low.

2. Terra Firm wants out

Secondly, Terra Firma has said it would like to sell its remaining 70% shareholding.

Such a large sale could well take place at a discount to the current market price, depressing the share price further.

3. Political risk

Infinis’s profits are heavily dependent on government subsidies for renewable energy. These are likely to change over time, possibly unpredictably. This has already happened in the solar market, for example.

Dividend cuts

Ultimately, I think Infinis’s dividend is too aggressive to be safe. The firm might manage to maintain this level of payout for some years, but it might not. It’s not something I’d be comfortable with in my income portfolio.

In contrast, Centrica’s recent 30% dividend cut was disappointing for shareholders but should now put the firm on a safe footing for future payouts, which will be based on post-tax operating cash flow.

Similarly, both SSE and National Grid have managed to maintain their policy dividend growth in-line with RPI inflation. Both have dividend cover of about 1.25, and remain attractive as income buys, in my view.

The post Is Infinis Energy PLC A Better Income Buy Than SSE PLC, Centrica PLC & National Grid plc? appeared first on The Motley Fool UK.

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Companies that make in onto the list have a dividend yield of 4% or more and a lower-than-average Merton score — a measure of credit risk and financial stability.

Here are the five UK companies that pass the screen, and, as a result, according to Société Générale, are most likely to cut their dividend payouts.

Payout concerns

Renewable energy company Infinis Energy (LSE: INFI) is no stranger to dividend concerns. The company is promising a dividend payout of around 18.50p per share for each of the next three years.

That gives a dividend yield of around 10% at present, but the payout isn’t covered by earnings per share. This year the company is set to pay out around 140% of earnings to shareholders. 

Infinis’ annual payout will cost the company around £50m per annum. But with only £66m of cash on the balance sheet at the beginning of this year and net debt of £554m, it looks as if the company will struggle to keep up its extravagant dividend policy. 

Management guarantee 

Miners feature heavily on Société Générale’s list of high dividend risk companies.

Both Vedanta Resources (LSE: VED) and Anglo American (LSE: AAL) make it onto the list due to falling earnings and weak balance sheets. 

Vedanta’s dividend yield currently stands at 6.2%, although the company is set to make a loss this year. Moreover, Vedanta’s net debt to equity ratio stands at a staggering 530%. 

However, Vedanta’s management has stated that it intends to maintain the company’s dividend payout at present levels. So, the dividend may be safe, but Vedanta’s financial situation is precarious. 

Anglo’s dividend yield is set to top 5.2% this year, and according to estimates the payout will be covered by around 1.3 times by earnings per share.

Still, Anglo has reported a net loss for each of the past three years, and there could be additional losses to come. 

Anglo’s production costs are far higher than peers, and one of the company’s key projects is already three times over budget. That said, the company is currently trying to sell its iron ore arm, which could give it much needed cash infusion. 

Digging deeper 

Dairy Crest (LSE: DCG) makes the list of high dividend risk companies, but it’s difficult to see why. The company’s dividend payout of 21.7p per share equates to a yield of 4.3%. The payout is covered twice by earnings per share. 

Nonetheless, if you dig a bit deeper, it’s clear why Dairy Crest has made the list.

Dairy Crest’s return on assets has halved over the past six years. Shareholder equity has slumped by 30% since 2009, and after stripping out exceptional items, the group’s dividend is only covered 1.2 times by earnings per share. These numbers signal that the company is struggling.

Oil dependant  

Lastly, Amec Foster Wheeler (LSE: AMFW) which has made it onto the list following the oil price slump. The company is set to yield 4.8% this year and the payout is covered twice by earnings per share. 

However, the sustainability of Amec’s payout is dependent upon the demand for the company’s services, which is correlated to the price of oil. So, if the price of oil starts to push higher, Amec’s payout is likely to become more secure. 

The post Are These Dividends At Risk? Infinis Energy PLC, Vedanta Resources plc, Anglo American plc, Dairy Crest Group plc And Amec Foster Wheeler PLC appeared first on The Motley Fool UK.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.