By definition, a yieldco is a publicly traded company that is formed to own operating assets that produce a predictable cash flow. Separating volatile corporate activities from stable and less volatile cash flows of operating assets can lower the overall cost of capital. Yieldcos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies that own a sizable stake.
The UBS report examines five current yieldcos and the potential for increased dividends through 2018.
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. UBS sees the company’s dividend rising to as high as the 9% range by 2018.
Abengoa investors are paid a 3.12% dividend. The stock is not covered at UBS. The Thomson/First Call consensus price target is $36.83, and shares closed Tuesday at $33.20.
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NextEra Energy Partners L.P. (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. The UBS team sees the yield rising to around 4% by 2018.
Investors are paid a 1.93% dividend. UBS has the stock rated Neutral, with a $34 price target. The consensus target is much higher at $41.80. Shares closed Tuesday at $40.46.
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 water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations. The UBS team sees the yield rising into the mid-5% range by 2018.
NRG Yield investors are paid a 2.8% dividend. UBS has a Neutral rating on the stock and a $54 price target. The consensus target is $57.55. Shares ended trading on Tuesday at $54.28.
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Pattern Energy Group Inc. (NASDAQ: PEGI) is an independent power company with a portfolio of 12 wind power projects, with a total owned interest of 1,636 megawatts, in the United States, Canada and Chile that use proven, best-in-class technology. Pattern Energy’s wind power projects generate stable long-term cash flows in attractive markets and provide a solid foundation for the continued growth of the business. The company just completed a well-received secondary offering of shares. The UBS team sees the dividend rising to over 7% by 2018.
Investors are currently paid a 4.6% dividend. The company is not covered by UBS. The consensus price target is $33.39. Shares ended the day at $30.01 on Tuesday.
TerraForm Power Inc. (NASDAQ: TERP) owns and operates solar and wind generation assets serving utility, commercial and residential customers. Its portfolio consists of solar projects located in the United States, Canada, the United Kingdom and Chile, with total nameplate capacity of 887.1 megawatts. The company was formerly known as SunEdison Yieldco and changed its name last year. It is perhaps one of the highest profile companies operating as a yieldco. The UBS team see the yield rising to more than 5% by 2017. No 2018 figure was posted.
TerraForm investors are currently paid a 3.3% dividend. UBS does not provide coverage, and the consensus price target is $38.50. Shares closed on Tuesday at $32.90.
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While new yieldcos should continue to come into the market, the UBS team sees the biggest story in the sector being one of consolidation and improving growth metrics within the current ranks. With dependable and growing dividends, income investors may want to look closer at the top companies.
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