In a stock market that is very antsy, newer technologies like alternative energy always seem to get hit hard when volatility starts to rise, despite the fact that the fundamentals for the industry as a whole are very positive. Merrill Lynch recently hosted investors and management teams representing a broad cross-section of the alternative energy value chain, from technology providers to developers, asset owners and operators, as part of the firm’s alternative energy conference. They gleaned valuable insight and are very positive long-term on the potential.

The Merrill Lynch team cited the obvious areas like commodity price weakness, the overall energy sell-off and a big increase in supply via stock issuance as reasons for the pounding many of the top stocks in the sector have taken. They think that five stocks look very appealing at current trading levels, we narrowed the list down to the three yieldcos with outstanding dividend payouts and that are rated Buy.

Abengoa Yield

This stock is down over 40% since early June. Abengoa Yield PLC (NASDAQ: ABY) is a total return company that owns a diversified portfolio of contracted renewable energy, power generation and electric transmission assets in North America, South America and Europe. The company is focused on providing a predictable and growing quarterly dividend or yield to shareholders and has really taken a share price bath for little if any reason.

Some analysts on Wall Street see the company’s dividend rising to as high as the 9% range by 2018, and some are expecting 10% to 20% dividend growth from the company over the next two years. We recently covered the fact that the yieldcos may be worth much more than the market is currently giving them credit for.

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Abengoa investors are paid an incredible 7.1% distribution. The Merrill Lynch price target was recently dropped to $30, but the firm remains positive on the long-term outlook. The Thomson/First Call consensus price target is much higher at $37.76. Shares closed Friday at $22.52.
NRG Yield

This stock is down 37% since early June. NRG Yield Inc. (NYSE: NYLD) owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the United States, including fossil fuel, solar and wind power generation facilities that provide the capacity to support more than a million American homes and businesses. The company’s thermal infrastructure assets provide steam, hot and chilled water and in some instances electricity to commercial businesses, universities, hospitals and governmental units in multiple locations. Some Wall Street analysts see distributions increasing by 15% to 18% over the next two years.

The company posted disappointing second-quarter numbers and the market took no quarter as the stock has been absolutely eviscerated. While operating revenue increased from $173 million a year ago to $217 million, cash available for distribution fell from $43 million to $26 million, and that clearly spooked investors.

NRG Yield investors are paid a very large 4.97% distribution. The Merrill Lynch price target is set at $24, and the consensus price target is $25.38. Shares ended trading on Friday at $16.89.

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NextEra Energy

This is yet another solid company that has been absolutely hammered. NextEra Energy Partners LP. (NYSE: NEP) is a growth-oriented limited partnership formed by NextEra Energy, a leading clean energy company, to own, operate and acquire contracted clean energy projects with stable, long-term cash flows. Headquartered in Juno Beach, Fla., NextEra Energy Partners owns interests in wind and solar projects in North America. These renewable energy projects are fully contracted, use industry-leading technology and are located in regions that are favorable for generating energy from the wind and sun.

While the company posted decent earnings, and growth was evident, a narrowing of operating margins has contributed to decline in earnings. Operating cash flow, though, looks promising, and for patient investors this company may be yet another gem.

Investors are paid a reasonable 3.05% distribution. The Merrill Lynch price target is an eye-popping $52, while the consensus figure is much lower at $43.08. The shares closed trading on Friday at $30.86.

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Needless to say, for investors looking for total return, the ability to maintain current distributions is the top priority. All these companies are executing well, and patient investors that have the ability to handle the volatility may be rewarded handsomely.

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