Investment Thesis – Crius Energy Trust (KWH.UN)

  • Very high dividend yields. Currently about 9%.
  • Monthly dividend payouts are good for compounding.
  • FCF growth consistent. Excludes the sudden hike in FCF in 2014.
  • The company incurs low debt holdings so Debt/FCF ratio is low.
  • Worrisome Net Income growth rate. Highly inconsistent in last 4 years, even dipping toward negative Net Income. Revenue and Gross profit, however, has been consistently rising. This means the cause of the sporadic Net Income is from operating expense/interest expense/tax expense. In 2014 & 2015, the two years with negative Net Income figures, Change in Fair Value of Derivative Instruments & Change in Fair Value of non-controlling interest dipped by a large amount YoY. It was mentioned in their annual report that the cause of these dips were non-cash related market movements, which is not related to the profitability of the company. Hence, we should not consider the negative and inconsistent Net Income to be a thesis against the company.
  • Having Dividend yield larger than FCF yield raises questions of how the business is funding the high dividend yield.
  • Crius has a high Dividend Payout Ratio. This is highly unsustainable for the business. Also noteworthy is that there was a spike in the dividend payout ratio from 2016 (28%) to 2017 (248%), which could mean that the dividend is heading into unsustainable territory.
  • Dividend growth somewhat inconsistent over last 5 years.

  • Qualitative growth?

  • Overall, intending to hold 2% of its shares and will increase my holdings when prices fall below $8

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