Enviva Partners LP: Ignored Stock Increased High-Yield Dividend for 23rd Straight Quarter
August 5, 2021
Enviva Stock: Bullish Energy Stock Has 5.8% Yield
Enviva Partners LP (NYSE:EVA) is an excellent energy stock that often gets overlooked because it has nothing to do with oil, natural gas, wind, solar, coal, or any of the other usual suspects.
Instead, Enviva specializes in sustainable bioenergy: wood pellets. It’s actually the world’s largest producer of sustainable wood pellets, which provide a low-carbon alternative to fossil fuels. (Source: “Business Overview,” Enviva Partners LP, June 14, 2021.)
Enviva supplies utility-grade wood pellets to power generators. The company buys wood fiber, processes it into pellets, and ships the finished product to customers in the U.K., Europe, and Japan. The pellets are used as a substitute for coal.
The company has five corporate offices and nine manufacturing plants. Those plants (in North Carolina, Mississippi, Florida, South Carolina, Virginia, and Georgia) can produce approximately 5.4 million metric tons per year (MTPY) of utility-grade wood pellets.
Drop-Down Transaction Significantly Increases Scale & Diversification
In July, Enviva Partners LP completed the previously announced $345.0-million purchase from Enviva Holdings LP of a wood pellet production plant in Lucedale, MS, a deep-water marine terminal in Pascagoula, MS, and three long-term take-or-pay-off contracts with Japanese counterparties.
The transaction was funded with about 50% equity and 50% debt, which is consistent with the partnership’s conservative financial policies and growth initiatives.
The acquisitions will increase the number of plants to 10 and the fully contracted production capacity by 14% to 6.2 million MTPY. They will also increase the number of terminals to six and the deep-water terminal throughput capacity by 38% to 10.9 million MTPY.
Enviva Partners LP’s take-or-pay-off contracts represent incremental deliveries of 630,000 MTPY of wood pellets to Japan. They have an aggregate weighted-average contract life of 15 years and add a total sales backlog of $1.9 billion to Enviva’s portfolio.
On a pro-forma basis, as of April 1, production from the Lucedale plant is fully contracted through 2034.
“Enviva is further expanding our scale and diversification with the Lucedale plant and Pascagoula terminal drop-downs, which not only represent the exciting start of a new asset cluster for us, but also pave the way to achieving adjusted [earnings before interest, taxes, depreciation, and amortization (EBITDA)] in excess of $300 million for 2022,” said John Keppler, chairman and CEO. (Source: “Enviva Partners, LP Announces Accretive Drop-Down Transactions, Increases 2021 Guidance, and Provides 2022 Guidance,” Enviva Partners LP, June 3, 2021.)
Enviva Partners LP Increases 2021 Guidance & Provides 2022 Guidance
Because of its three acquisitions, Enviva was able to increase its 2021 guidance and provide preliminary 2022 financial guidance.
From a total investment of $345.0 million, the acquisitions are expected to generate net income in the range of $18.9 to $20.9 million and adjusted EBITDA in the range of $43.0 to $45.0 million once “fully ramped.” (Source: Ibid.)
For full-year 2021, Enviva Partners LP now expects to report net income in the range of $29.4 to $49.4 million and adjusted EBITDA in the range of $250.0 to $270.0 million.
Given the expected benefits of the acquisitions, the partnership increased its distribution guidance for full-year 2021. It now expects to distribute at least $3.30 per common unit of EVA stock for full-year 2021.
For fiscal 2022, Enviva Partners LP expects to report net income in the range of $96.0 to $116.0 million and full-year 2022 adjusted EBITDA in the range of $310.0 to $330.0 million. That doesn’t include the benefit of additional drop-downs or other acquisitions.
The partnership expects its full-year 2022 distribution to be at least $3.62 per common unit, which enables it to maintain a distribution compound annual growth rate (CAGR) of 11% since 2019 and 12% since its initial public offering (IPO) in 2015.
EVA Stock Has Outperformed S&P 500 Since 2015 IPO
Wood pellets may not sound as exciting as wind turbines or pump jacks, but it’s a lucrative sector that has sent Enviva stock significantly higher and has made EVA stockholders a lot of money. Since its IPO, shares of Enviva Partners LP have outperformed the S&P 500 by 209% while delivering an annual total shareholder return of 25%.
Over the last five years, Enviva stock has rallied by 285%. Currently trading at record levels, the dividend stock is up by:
- 20% over the last six months
- 28% year-to-date
- 60% year-over-year
- 200% since bottoming in March 2020
Chart courtesy of StockCharts.com
23rd Consecutive Quarterly Dividend Increase
Every investor likes to see their underlying investment soar, but income investors also want to know that their favorite stock is also rewarding them with high-yield dividends that increase on a consistent basis. EVA stock does just that.
Enviva Partners LP has increased its distribution for 23 consecutive quarters, expanding at a CAGR of 12%.
In May, the partnership declared a distribution of $0.785 per unit, a 15.4% increase over the first quarter of 2020 and its 23rd consecutive quarterly distribution increase since its IPO.
At the current price of Enviva stock, that represents an annual dividend of 5.8%.
EVA stock has a history of providing a high dividend yield, and by all accounts, it will continue to do so. The company’s trailing annual dividend yield is 5.7% and its five-year average dividend yield is 7.6%.
The Lowdown on Enviva Partners LP
What’s not to love about the overlooked Enviva stock?
Enviva Partners LP was already the world’s largest producer of sustainable wood pellets, but thanks to three recent acquisitions, it has gotten a whole lot bigger. As a result, it was able to increase its 2021 guidance and provide strong guidance for 2022.
All of that has helped juice EVA stock to record levels and it has allowed the company to announce its 23rd consecutive quarterly dividend increase. The good times are expected to continue, with the acquisitions enabling the company to continue to generate durable cash flows and grow its distributions.
