Outperforming both plans and expectations hasn't been enough for 8point3 Energy Partners LP (CAFD) to impress investors. Fiscal fourth-quarter 2016 results announced Thursday after the market closed beat revenue, net income, and adjusted EBITDA guidance, and if it weren't for a slight delay in a $6 million reimbursement, the company would have beaten cash available for distribution (CAFD) guidance as well.
The stock's relatively poor performance and dividend yield of 7.2% as of the time of this writing has left sponsors First Solar (FSLR 2.17%) and SunPower (SPWR -8.41%) looking for alternatives to selling projects to the yieldco. And if that lasts long enough, the yieldco's value to the sponsors could soon dissipate.
A residential solar community project developed by SunPower. Image source: SunPower.
The numbers
Quarterly results were solid for 8point3 Energy Partners, as acquisitions added to the portfolio. Revenue was $14.5 million, net income was $4.2 million, EBITDA came in at $18.3 million, and CAFD was $20.4 million. The CAFD figure would have been around $26 million if it weren't for the delayed reimbursement from a utility partner.
This performance continues 8point3 Energy Partners' streak of meeting or beating expectations as a public company, and it made big moves in acquiring a 49% stake in the SunPower-developed 102 MW Henrietta project and a 34% stake in the First Solar developed 300 MW Stateline project. But we may be entering a lull in project acquisitions that could lead to slower growth.
Lowering expectations
One slight disappointment for investors was the announcement that 8point3 Energy Partners only plans to grow the dividend 12% in 2017. That's below the 15% dividend growth rate since the company was launched and is at the low end of guidance.
The driver of the reduction in the dividend is the yieldco market overall. Low stock prices have led to higher dividend yields than companies expected, which make it difficult to issue shares to buy projects accretively. 8point3 Energy Partners' current 7% dividend yield isn't conducive to new share offerings to fund projects, and sponsors apparently think there are better buyer options elsewhere.
There are two ways to take the dynamic of dividend growth and funding acquisitions. One is to be disappointed the dividend won't grow, but then you have to realize that a 7% dividend yield with contracted cash flows for 20 years is still a great value. The other reaction is to respect management's restraint in waiting for the ability to fund projects accretively instead of just trying to grow for growth's sake. Many yieldcos have erred on the side of growth, and it's usually come back to haunt them in the long run.
Frustration setting in
Amid the solid performance in the quarter, sponsors SunPower and First Solar are getting frustrated with the yieldco's high dividend yield and inability to buy projects they want to sell. SunPower pulled the 20 MW IPT Solar Gen project and 54 MW of Stanford projects from the right of first offer (ROFO) portfolio and replaced them with the 100 MW Boulder Solar 1 project and 42 MW of commercial projects. SunPower also asked to have the 100 MW El Pelicano project removed, and First Solar would like to remove the 179 MW Switch Station.
Taken as a whole, the sponsors are pulling projects from the ROFO portfolio that they want to monetize near term and replacing them with projects further down the line. That may not be a problem if the yieldco recovers in a year or two, but it shows their frustration with the inability to drop down assets at will. On the flip side, it may also mean they can sell projects more easily, and with a higher price on the open market than to 8point3 Energy Partners, which is good for the sponsors.
What to take from 8point3 Energy Partners' results
8point3 Energy Partners may be slowing down its growth plans, and sponsors may have to adjust where they're selling projects. But that's not all bad for investors.
At worst, 8point3 Energy Partners is a great dividend stock with an average 20 years of contracted cash flows on solar projects that essentially guarantee the dividend for years to come. And if the stock recovers in the future, it can go on a growth spurt again.
Despite a slowdown in 8point3 Energy Partners' potential dividend growth, this is a stock I'll hold on to for a long time to come.
