Yieldco 8point3 Energy Partners (CAFD) boasts a whopping 7.4% dividend yield, which to many investors might seem a little too high.
In this clip from Industry Focus: Energy, our energy analysts explain why it's good to be wary of such high dividend yields, why 8point3's in particular is so high, and what it means for the company's long-term health.
A full transcript follows the video.
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This podcast was recorded on Feb. 9, 2017.
Gaby Lapera: Question for you. Why is 8point3's yield so high? High yields make me very nervous because I come from the financial sector, and that means hinky accounting is going on.
Sean O'Reilly: You are wise to be suspicious.
Taylor Muckerman: What is the yield?
O'Reilly: It's 7.4%. The reason is, recently, SunEdison went bankrupt, and it has two yieldcos. They had TerraForm Global and TerraForm Power. And things are not going well over there. The yields on those are astronomically high, and it's because of the association with SunEdison; you wonder who owns these projects and what's going on. Everybody owes everybody else money; there are all the problems. So there is a sector overhang to the yieldcos because some investors have gotten burned with that, and they're like, "Nah, I'm not going over to 8point3 Energy Partners, it's not happening." Fortunately, it is jointly owned by these two companies, so you can imagine a scenario where, let's pretend one of them goes bankrupt; the other one will more than likely be around to keep things going, keep it funded, buy the stake in the other one. SunEdison is going through bankruptcy, and the ownership of these yieldcos, the part ownership, I should say, of TerraForm Global and TerraForm Power, that's in bankruptcy court, so that tosses all kinds of questions up in the air, and nobody wants to touch it.
Lapera: So, listeners, I think that the thing that Sean is getting at here is that, when a stock's price goes down, its dividend yield goes up. So when there's problems with the stock, even if it's not fair, even if it's just the economy in general, the dividend is going to go up. So it's up to you to decide whether or not the stock itself is safe.
