A reader sent this note in response to our recent article about green and renewable investing and the Bullitt Center.
Like Solyndra and other projects, if it is not economically profitable it will be a failure. The biggest expense for any building is property taxes, the utilities are incidental. At $600 a square foot for construction, the rents will not attract any renters. Without parking it will be totally unattractive, except for some Green non-profit. With taxes, space will rent for well over $50 per square foot at a 6% CAP rate. Green is the fool’s gold of the environmentalist.
There is no doubt that the reader has a point. The Bullitt Center may not make a profit. The Bullitt Center may be just about R&D. This is why it is funded by an NGO. But we still have to keep trying to tackle problems like the environment. We still have to use our capital to evolve and to follow what is dear to our hearts.
Here are important reasons to Merri and me why we invest in green.
Our grandchildren, Teeka and Sequoia.
Leo, Fran, mom and me… four generations.
Garren, Cheri, mom and me.
Mom is 90 in June and her generation sacrificed plenty for us boomers. So if I were to lose on an investment that experiments on ways to make our grandchildren’s world a better place… good for me.
However there are plenty of ways to help the environment AND make the world a better place.
First, renewable energy can be profitable. Take Brookfield Renewable Power shares as an example. I first wrote about and invested in these shares August 2010.
Brookfield Renewable Power share chart from www.finance.yahoo.com. (Click on chart to enlarge.)
That’s not a bad return in my opinion.
Since that time the share price has almost doubled and the shares have paid a regular excellent dividend averaging over 5%.
The trend continues as well. A recent Forbes article entitled “Brookfield Renewable Energy Partners Named Top 25 Dividend Stock With 4.58%”
Brookfield Renewable Energy Partners LP (Toronto: BEP-UN) has been named as a Top 25 dividend stock, according to the most recent Canada Stock Channel ”DividendRank” report. The report noted that among the coverage universe, BEP.UN shares displayed both attractive valuation metrics and strong profitability metrics. The report also cited the strong quarterly dividend history at Brookfield Renewable Energy Partners LP, and favorable long-term multi-year growth rates in key fundamental data points.
The report stated, ”Dividend investors approaching investing from a value standpoint are generally most interested in researching the strongest most profitable companies, that also happen to be trading at an attractive valuation. That’s what we aim to find using our proprietary DividendRank formula, which ranks the coverage universe based upon our various criteria for both profitability and valuation, to generate a list of the top most ‘interesting’ stocks, meant for investors as a source of ideas that merit further research.”
The annualized dividend paid by Brookfield Renewable Energy Partners LP is $1.38/share, currently paid in quarterly installments, and its most recent dividend ex-date was on 12/27/2012.
See a long-term dividend history chart for BEP.UN, in the article linked below.
I’ll be the first to add that hydro power is not a perfect answer to improving the environment… so one may want to look for other ways.
The green portfolio leveraged with a Japanese yen loan we recommended. In 2007 it rose 260% in a year.
Here is that green portfolio which was a blend of venture and established green shares.
Taking some green risk can improve your overall investment returns with green investing and modern portfolio theory.
The idea of blending green and non green and established green (like Brookfield) with venture green fits nicely into Modern portfolio theory.
Modern portfolio theory balances a portfolio between risk and non risk investments to maximize portfolio expected return and minimize risk.
Here is a traditional MPT stock bond chart showing that the best risk reward ratio for a portfolio is 60% shares and 40% bonds.
Two decades ago when emerging markets were considered, the non traditional high risk portfolio… Modern portfolio theory showed that a 70% major markets and 30% emerging markets balance created the best return with the lowest volatility at that time.
You can combine modern portfolio theory and venture capital management to make renewable energy and green energy improve your profits as you use your investments to do something that you feel is important.
Risk Vs. Reward
The key to successful green investing is to approach this as a venture capitalist and to adhere strictly to value investing concepts. In the case of green ventures the value is determined by risk versus reward.
You might be investing in an untested venture. the reason for doing so is that it will turn into the next big thing.
With mature businesses value is much easier to determine based on dividend, yield, sales, price earnings ratio, cash flow and the history of the share price in its sector and its market.
One of these is available for ventures. Here are some of the factors to look for in new ideas.
Management. First and foremost a venture investment is an investment in the management of the company.
Market. How big is the potential? We can see the downside (zero) and the consequences of it. How big can the idea grow?
Competitive Edge. What does the idea have that cannot be duplicated quickly once it proves itself?
Regulation. Look at the potential regulatory and legal issues are involved.
An important reason to invest in green is because this is fulfilling to you.
When you make a profit investing in your life’s mission, you gain the best possible profit. However recognize that most ventures fail. Venture capitalists invest with the idea that a little returns a lot… so they invest a little in a lot of ventures. The few ventures that bring huge profits make up for the many that lose. Add these ideas to the power of environmental concerns and your portfolio can make the world a better place and create profits that turn others green with envy.