NYSE listing boosts Atlantic Power (AT)

by Carla Pasternak, editor High-Yield International

Atlantic Power Corporation (AT) operates 14 power generation projects and one transmission line in the U.S. and sells power mainly to electric utilities in major U.S. markets.

Atlantic took a huge step forward when shares became listed on the NYSE on July 23rd. This listing will add recognition and liquidity to the company.

Investors can now more easily purchase shares without the extra commission associated with purchasing foreign securities. The increased exposure that the NYSE brings could also be advantageous to the share price.

As well, Atlantic will have access to the capital markets where it can more easily raise cash on the cheap for project expansions.

The company is incorporated in British Columbia, Canada, as its original listing was on the Toronto Stock Exchange (TSX) where it traded as income participating securities (IPS).

Although its operations are in the United States and its principal offices are located in Boston, the company still pays dividends in Canadian dollars.

IPS Shares were converted to common shares in December 2009 and management stated its intention to maintain the current dividends.

Atlantic pays dividends every single month. Dividends are C$0.0912 per month or C$1.094 annually, which translates to a sky high 8.4% yield at today's price (C$1.094/C$12.96).

Dividends are converted to U.S. dollars, so there is some currency risk. There is also a 15% withholding tax on dividends.

However, IRAs and qualified accounts are exempt and taxes on regular accounts can be offset and retrieved when filing income taxes.

Atlantic generates and then sells electricity from a number of different sources, including natural gas as well as hydropower, coal, oil, biomass, geothermal, sun and wind.

However, the company earns predictable revenues because about half are generated by payments for capacity, whereby the company earns fixed fees for making power available regardless of how much is purchased or used.

The rest of the revenue is largely accounted for with fixed rate contracts for services and contracts that stipulate that the effects of commodity price fluctuations will be passed on to the consumer.

In the first quarter, EBITDA decreased to $38.8 million from $41.1 million in the year-ago quarter and cash flow available for distributions fell -26% to $17.8 million over the same period.

A number of expected events contributed to lower earnings, including the sale of the Mid-Georgia and Stockton projects last year, a contract expiration at Rumford, and several onetime events in 2009.

However, the numbers were in line with company expectations, and the company reiterated its previous guidance of $70 to $77 million in projected distributions in 2010.

While cash flow available for distributions of $0.30 per share resulted in a payout ratio of 89% in the first quarter, Atlantic is expecting a 100% payout ratio for both this year and next.

The company expects a significant bump in revenues in 2012 when the Selkirk project pays off its debt and resumes earnings contributions.

Action to Take --> The recent listing on the Big Board, combined with a rich 8% yield supported by high-quality monthly distributions, should generate new investor interest and provide some upside potential for the shares.

Learn more about this financial newsletter at  Carla Pasternak's High-Yield International.