Buried deep within Ormat Technologies' Q1 2024 earnings call lies a story that seems to have slipped past most analysts: a dramatic improvement in cash collections from Kenya, hinting at a potential windfall that could bolster Ormat's financial position and pave the way for a future dividend hike.

While Ormat's successful drilling campaign in Kenya, with its promise of increased generation capacity, grabbed headlines, CFO Assaf Ginzburg quietly dropped a bombshell about the company's Kenyan cash flow. He revealed that in just the first four months of 2024, Ormat had collected a staggering $60 million in payments from Kenya, including over $25 million in back payments. This represents a significant shift from the challenges Ormat faced in 2023, when a shortage of US dollars in Kenya led to a growing pile of receivables, ultimately impacting the company's operating cash flow.

Ginzburg attributed this positive development to a combination of factors. Firstly, favorable weather conditions in the second half of 2023 boosted Kenya's agricultural exports, leading to an influx of US dollars. Secondly, the Kenyan government successfully issued a €2 billion bond, further strengthening its financial position and ability to settle outstanding payments.

This dramatic improvement in Kenyan collections presents a compelling narrative that goes beyond the immediate financial gains. It speaks to Ormat's resilience and strategic foresight in navigating challenging geopolitical and economic landscapes. It also reinforces the company's commitment to its long-term growth strategy, centered on expanding its global geothermal and energy storage portfolio.

But what does this Kenyan windfall truly mean for Ormat and its shareholders? Let's delve into the numbers.

In 2023, Ormat saw a nearly $60 million increase in receivables, largely due to delayed payments from Kenya. If we assume a similar level of electricity generation from Kenya in 2024 and apply the collection rate witnessed in the first four months, Ormat could potentially recover the entire outstanding amount from 2023 and potentially collect an additional $60 million in current year payments. This could translate to an impressive $120 million boost to Ormat's operating cash flow in 2024.

This potential cash influx has far-reaching implications. It could further strengthen Ormat's already robust balance sheet, providing greater financial flexibility for future acquisitions and project development. It could also fuel a potential increase in Ormat's dividend, currently at $0.12 per share.

While the company has stated its intention to maintain the current dividend level for the remaining three quarters of 2024, the Kenyan cash flow improvement, combined with the expected $150 million in cash proceeds from IRA tax benefits, creates a compelling case for a future dividend hike.

Ormat has a history of rewarding its shareholders with steady dividend growth. From 2005 to 2011, the company consistently increased its annual dividend, only to pause it during a period of heavy investment and expansion. With its renewed focus on profitable growth and the potential for significantly improved cash flow in 2024 and beyond, Ormat could be poised to resume its dividend growth trajectory, making its stock even more attractive to income-seeking investors.

Historical Dividend Growth (2005-2011)

The Kenyan windfall is a subtle yet powerful indicator of Ormat's ability to navigate complex environments and unlock hidden value. While the market remains fixated on headline-grabbing growth targets and drilling campaigns, this story of financial resilience and potential dividend growth may be the real gem waiting to be unearthed.

"Fun Fact: Geothermal energy, Ormat's core business, is a renewable energy source derived from the heat within the Earth's core. This heat is continuously replenished, making it a sustainable and reliable energy source."