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Why Pattern Energy Group Inc. Is Down Over 3%

Pattern Energy Group Inc. (TSX:PEG)(NASDAQ:PEGI), one of the world’s largest independent producers of wind power, announced its second-quarter earnings results this morning, and its stock has responded by falling over 3% in early trading. Let’s take a closer look at the quarterly results and two other important announcements made by the company to determine if we should consider using this weakness as a long-term buying opportunity or if it could continue lower from here.

Breaking down the quarterly performance

Here’s a quick breakdown of six of the most notable statistics from Pattern’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q2 2017 Q2 2016 Change
Proportional megawatt hours (MWh) sold 2,111,627 1,715,286 23.1%
Revenue US$107.76 million US$93.44 million 15.3%
Adjusted EBITDA US$91.87 million US$78.63 million 16.8%
Net income (loss) (US$14.68 million) (US$15.65 million) 6.1%
Net cash provided by operating activities US$113.43 million US$55.26 million 105.3%
Cash available for distributions (CAFD) US$49.24 million US$35.51 million 38.7%

Two other important announcements

In the press release, Pattern made two other important announcements.

First, it announced a 0.5% increase to its quarterly dividend to US$0.42 per share, and the next payment will come on October 31 to shareholders of record on September 29.

Second, it reaffirmed its annual CAFD target for 2017, which calls for US$140-165 million and would result in growth 5-24% from 2016.

Should you buy on the dip?

It was a fantastic quarter overall for Pattern, and it capped off an outstanding first half of the year for the company, in which its revenue increased 15.2% to US$208.59 million, its adjusted EBITDA increased 21.3% to US$190.07 million, its CAFD increased 23.3% to US$94.39, and its net loss improved by 72.8% to US$12.15 million. With these strong results in mind, I do not think the 3% decline in its stock is warranted, and I would actually use it as a long-term buying opportunity for two primary reasons.

First, it’s one of the fastest-growing companies in the clean energy industry. Clean energy is the fastest-growing segment of the energy sector, and Pattern has continued to be one of the fastest-growing wind producers, which can be seen by its results in the second quarter and first half of 2017. The company also has numerous growth catalysts, including its pipeline of 10 gigawatts of development projects, so I think it will continue to grow at a double-digit pace into the 2020s.

Second, it has one of the market’s best dividends. Pattern now pays an annual dividend of US$1.68 per share, which gives its stock a massive 7% yield. The company has now raised its dividend for 14 consecutive quarters, which will lead to 2017 marking the fourth consecutive year in which it has raised its annual dividend payment. Also, the company has a dividend-payout target of 80% of its CAFD, so its consistently strong growth should allow its streak of quarterly and annual dividend increases to continue for many years to come.

With all of the information provided above in mind, I think all Foolish investors seeking exposure to the clean energy industry should strongly consider using the post-earnings weakness in Pattern Energy to begin scaling in to long-term positions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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