A Closer Look at FutureFuel Corp. (FF): E I Du Pont De Nemours And Co (DD), Green Plains Renewable Energy Inc. (GPRE)

Closer to FutureFuel’s world, Green Plains Renewable Energy Inc. (NASDAQ:GPRE) has its entire market cap in cash with $280M in cash, but is burdened with a debt-to-equity ratio of 1.3. Green Plains is a popular stock when it comes to biofuels, as a producer of ethanol for blending, it has a government mandated market. It might not be enough if supply pushes prices down, though. The company operates on paper-thin margins, with gross and net below 5%. Green Plains Renewable Energy Inc. (NASDAQ:GPRE) was just upgraded, and it beat estimates. The debt level makes me concerned however. Also, I think FutureFuel’s biodiesel will be a safer long-term fuel than ethanol for blending, due to ethanol’s lower energy capacity.

Dividend suggests commitment to profitability

Alternative fuel companies generally have a ton of debt, and the industry is tricky enough that coming by a profit consistently is difficult. FutureFuel has almost half its market cap in cash, and has a dividend yield around 3.5%. No company would offer a regular dividend, let alone one that high, unless there is reason to believe that profitability will continue.

I do wonder whether FutureFuel will increase the dividend in the future. There are no earnings call transcripts for me to read, so I will have to wait for the next live call to get more of a sense for the company. I want to know a bit more about its operations and why it offers a dividend, when it does not seem like any other similarly-sized company in its industry does.

Final thoughts

I took a look at Renewable Energy Group, but decided that I still felt it was headed toward posting losses, and therefore demurred on deeper analysis. It highlights the tricky nature of the biofuels industry. When these companies have profit for a few quarters, people are looking at signs of consistency that eludes green technology in general. That is why I like FutureFuel with its dividend. It has committed to maintaining profitability.

The diversity of having chemicals and biodiesel offers it more flexibility. Biodiesel will be a growing market as traditional fossil fuels get expensive, but in the near-term the low price of natural gas is likely to hurt many biofuels producers. The dividend makes FutureFuel a solid choice to go long. It does require constant attention though. If profitability becomes an issue, then the dividend would disappear. In that case, I am less of a fan.

The article A Closer Look at FutureFuel originally appeared on Fool.com and is written by Nihar Patel.

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