Shares of Northland Power Inc. (TSX:NPI) plummeted on November 13, falling 27% after the company announced a significant dividend cut and reported that its third-quarter loss more than doubled compared to the previous year.
The sharp drop in share price wiped out most of its gains for the year, leaving the stock up around 2% year-to-date, as of the end of last week. The power producer is reducing its annual dividend by a massive 40%, from $1.20 per share, to $0.72. With the reduction, however, the yield is still fairly high at around 4%.
The new, lower dividend will start with the payment on January 15 to shareholders of record on December 31. This decision came as Northland announced a net loss attributable to shareholders of $412.7 million, for the quarter ended September 30. This was a substantial increase from the $178.2 million loss it reported a year ago.
It was not all bad news, as the company did show growth in its top line and cash flow. Revenue from energy sales rose to $554.5 million, up from $490.5 million in the same quarter last year. Furthermore, Northland’s free cash flow per share for the quarter amounted to 17 cents, more than doubling the 8 cents per share generated a year ago.
But with Northland primarily appealing to income investors, the dividend cut will overshadow the positive revenue growth and free cash flow, and could weigh on the stock in the weeks ahead. It could, however, make for a potentially appealing contrarian investment as the yield is still high, but investors should tread carefully with Northland as management is obviously seeing some concerning challenges ahead.
