Valener: A Fatter And Low-Risk 6.4% Dividend

This is my update on Valener. This is a preview of the article. You can read the full piece on Seeking Alpha.


  • Valener distributes a predictable, reliable, growing dividend. The dividend yield is currently at 6.2%.
  • Valener/Gaz Métro owns a portfolio high quality, diversified, long-life assets.
  • Valener has committed to grow the dividend by 4% for the next three fiscal years.
  • Valener/Gaz Métro is actively involved in the development and operation of innovative, promising energy projects projects such as the production of wind power and natural gas for transportation.



Valener Inc. is primarily traded on the Toronto Stock Exchange under the sticker I will be referring to the Canadian symbol for the article.

Note: Dollar amounts are in Canadian $ unless mentioned otherwise.USD-CAD 1.2406.Price of 1 USD in CAD as of June 29, 2015.

March 2014, I wrote my first article on Valener (VNRCF, VNR), Valener: A Fat And Low-Risk 6.4% Dividend. Surprisingly it became my most popular article ever. The success was unexpected since Valener is not a common name like Apple or Twitter and VNR is anything but not a sexy hip company. I wasn’t pitching to double your money either (FYI: VNR didn’t end up doubling either, unfortunately). So what do I attribute the popularity of the article to? The investors’ desire for income in this ultra-low yield world. What’s there to like about Valener is that it pays a nice generous stable predictable dividend backed by a portfolio of high-quality assets. As the title of my first article states, the dividend is fat and low risk and Valener announced an increase for this year and the next three fiscal years. My objective with this update is to review the company, the latest developments, its dividends, and valuation. Since this is an update I didn’t want to rehash everything. I suggest you read the original piece to have a better understanding of Valener.

Valener is the investment vehicle for an indirect stake in Gaz Metro L.P. because you can’t invest directly in the latter. Valener owns 29% of Gaz Metro and 24.5% in the Seigneurie de Beaupré wind power project. The rest of Gaz Metro L.P is owned by Gaz Metro Inc (GMI), a consortium of institutional investors like pension funds. GMI mainly holds an economic interest of approximately 71% in Gaz Métro, for which it acts as the General Partner and a financing vehicle.

Valener is an opportunity for the conservative income oriented investor with a very long-term horizon. The guy that doesn’t want to leave his money at 0.40% in the bank account, needs income, and doesn’t want to start juggling with more risky investments. Below is a chart of VNR since my publication on March 10, 2014.

Source:Google Finance.VNR vs S&P TSX vs S&P 500

VNR performed relatively well compared to the indexes. VNR outperformed the S&P TSX, the index it’s listed on. You would have done better if you have simply invested in the S&P500 but if you add the 6%+ dividend, the returns are similar assuming you held the stock in a tax shelter account. However VNR underperformed both indexes over the last five years but you still made money with the dividend. I’m not sure if comparing VNR to the major equity indexes is the right way to measure its performance since it’s really an income oriented stock.

When I wrote my first article on VNR some of the concerns at the time regarding the wind projects were 1) Will they be completed on schedule and on budget? 2) Will it replace the gap in cash flow required to maintain the dividend? Without rehashing the whole story and to spare you from the nity gritty details, at the time when VNR converted from an income trust to a corporation, VNR and Gaz Metro had a three year agreement where Gaz Metro would provide an amount to sustain the distribution at their current level. The point was that the Valener/Gaz Métro shareholders, a base that invested for the income, shouldn’t be penalized for a change in the law. So during that three year period Valener had to come up with a plan to generate enough cash to fill the gap and sustain its dividend. That plan was the wind farm projects at the Seigneurie de Beaupré. Today we have the answers to both questions. The last wind project was successfully completed in December 2014 and the outcome was better than expected. Combined with greater earnings at Gaz Metro and Central Vermont Public Service, VNR announced a 4% dividend increase for FY2015 and a 4% dividend growth target for the next three fiscal years.

Basically by investing in Valener, you are investing in a diversified and largely regulated energy portfolio in Quebec and Vermont. As a strategic partner, Valener, on one hand, contributes to Gaz Métro’s growth, and on the other hand invests in wind power production in Quebec together with Gaz Métro. VNR/Gaz Métro is a portfolio of high-quality, low-risk, regulated, long-life assets that will produce stable operating cash flows.

“How can a society that exists on instant mashed potatoes, packaged cake mixes, frozen dinners, and instant cameras teach patience to its young? ” – Paul Sweeney

People and investors are not patient and they are less and less as time goes by. We are in a society that seeks immediate gratification. We want it done now. We want action and we want our investments to make Jim Cramer scream buy buy buy. Investors want to hear companies say they will deliver the moon. It doesn’t matter if sexy company X doesn’t deliver on those sky-high promises because investors already moved on to the next saveur du jour.

Valener is a different kind of company. Valener is a company that’s very patient and that doesn’t fit in today’s society. VNR is a company that you buy and forget for many years. Meanwhile you get four cheques a year that increase annually. Valener is a turtle, a company that develops slowly but well over time, either organically or through acquisitions. Valener is a company that gets better with time.

About Valener and Gaz Métro L.P.

Source: Valener

On the surface, Valener looks like a simple company with a 29% holding in Gaz Métro and a few wind farms. In fact when you take a deeper look at Gaz Métro L.P., which is mostly known for their natural gas distribution, it unveils a web of holdings that sprawls in many different companies and regions. It owns companies that most people are not aware of such as Vermont Gas Systems (VGS) and Green Mountain Power (GMP) among others. It has interests in pipelines, energy storage, LNG plant and more. Gaz Métro reports its business in four mains segments:

Source: VNR/Gaz Métro 2014 AIF

Source: BMO Capital Markets – 12th Annual Infrastructure & Utilities Conference

This is a preview of the article. You can read the full piece on Seeking Alpha.


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