Oil in the Gulf, Blood in the Streets

As soon as the situation in Greece turned violent European authorities’ participation in a full-blown US-style bailout was assured. Credit Suisse’s (NYSE: CS) reading that these are monumental decisions with transformative qualities akin to the circumstances that forged the United States in the late 19th century may be a bit dramatic. But there’s no doubt that Germany, for example, is tied a lot tighter to Greece than it was a week ago.

Of more immediate concern are the fates of Spain, Portugal, and even the UK, whose sovereign debt position didn’t improve simply by now former Prime Minister Gordon Brown’s resignation. Extraordinary efforts by the European Central Bank and the European Commission to assist faltering members of the EU come with austerity measures that will require tax increases. And many US investors live in perpetual fear that the Obama administration will tax them literally to death.

We’ve also word that BP’s (NYSE: BP) initial attempts to cap what could be the worst oil spill ever have failed. This mess won’t determine the long-term fate of offshore drilling; the world needs the oil too much. It is a graphic reminder of the ends to which we must go to satisfy global energy demand; the official response will likely lead to higher costs for offshore drilling and rising oil prices.

And despite a steady stream of data indicating the global economy has turned the corner–the US Dept of Labor reported last week that American employers added a net 290,000 new workers in April, the best jobs news in four years–worries of a double-dip recession persist. Small businesses, less likely to export to improving economies in Asia and Latin America and more dependent on bank lending than larger firms, are still hesitant to add to payrolls.

All this follows what’s been cheekily branded “The Crash of 2:45 p.m.” The immediate cause of last Thursday’s 1,000-point intraday freefall may live in some firm’s proprietary “black box” trading system, or it could be as simple as a particular broker’s too-fat finger. What’s inarguable is that before and after the “glitch” a lot of “sell” orders got executed. Though high-frequency or program trading accounted for most of the volume, a lot of those “sell” orders were entered by humans whose perception of the market had shifted on a dime.

In other words, they panicked. Though these “Four Horsemen”–sovereign debt risk, rising taxes, the future of global growth and environmental disaster–clearly make more difficult what was already a complicated environment for individual investors, it doesn’t pay let yourself be overwhelmed by them.

The Antidote

Canada’s fate is tied to the global recovery story because of the local economy’s reliance on resources and related industries. Even though it did things right heading into the Great Recession–stringing together a decade’s worth of balanced budgets, paying down public debt, reducing tax burdens, regulating its financial system–Canada suffered more than most during the recent volatility. It’s unfortunate, but it’s true.

The damage has been particularly acute for American investors in loonie-denominated assets, as the Canadian dollar pulled back from near parity to the mid-90s per US dollar.

We remain comfortable with the long-term fundamentals undergirding Canada’s economy. It remains the best place for US-based investors to find income in this uncertain environment.

Step back from the tumult for a moment and consider the following. One view of professional investing, articulated by John Maynard Keynes in his General Theory, is that it boils down to identifying stocks the investor believes will be appreciated most by other investors. In Keynes’ words, “We devote our intelligences to anticipating what average opinion expects the average opinion to be.”

Another way to look at it–particularly as an income investor–is to think about buying a stock with the intention of holding it forever. This way you’re not dependent on what someone else–some other, greater fool–thinks of the value of your investment.

What’s the benefit? You and your heirs can expect to receive regular monthly, quarterly or semi-annual dividend payments for as long as the company stays in business. You’re buying a cash stream that smoothes out volatility. If the value of a stock is based on its dividend stream, a selloff such as last week’s is nothing more than a buying opportunity.

The way to smooth out the volatility is to collect dividends. A great place to start building your portfolio of income-generating assets is with Canadian Edge Conservative Holding Innergex Renewable Energy (TSX: INE, OTC: INGXF).

Innergex did well during the first 12 weeks of the year securing its future as a provider of clean energy in Canada, opening one new hydroelectric facility ahead of schedule and on budget and executing long-term power purchase agreements (PPA) for three more that generate an aggregate 113 megawatts (MW).

The company also completed its metamorphosis from trust to corporation via a combination of Innergex Power Income Fund with former parent Innergex, which was completed March 29. The new company declared its first dividend along with its earnings report; an initial quarterly installment of CAD0.14818 per share (prorated to include an additional two days; the annualized rate is CAD0.58 per share) for July 15 to shareholders of record June 30.

Production for the quarter declined from 163,912 megawatt hours (MWhr) a year ago to 157,666 MWhr. Net unfavorable hydrologic and wind conditions across Innergex’ portfolio led to the production decline. Lower output combined with higher interest expenses on long-term debt to hold revenue roughly flat with year-ago totals. Adjusted cash flows from operating activities were CAD8.6 million, up from CAD8 million a year ago.

In addition to the three new plants in British Columbia, which will come on line in 2015 and 2016, Innergex anticipates closing the financing for two new wind farms before the close of the second quarter. Steady cash flow generated by 17 operating facilities–and long-term sustainability promised by a healthy pipeline of new projects–make Innergex Renewable Energy a great income stabilizer.