Atlantica Yield (AY 2.41%) is all about sustainability. The company focuses on operating a portfolio of sustainable infrastructure assets like renewable energy projects and water desalinization plants that generate durable cash flows backed by long-term contracts. That provides it with the funds to pay an attractive dividend, which currently yields 6.8%. While higher-yielding payouts like that often come with more risk, Atlantica aims to sustain its payout by keeping its leverage low so that it can continue expanding its portfolio. Those durable characteristics were on full display during the first quarter.
Off to a solid start to the year
Atlantica Yield generated $47.6 million, or $0.47 per share, in cash available for distribution (CAFD) during the first quarter, which was 5.4% above the prior year's level. That was more than enough money to cover its $0.41 per share dividend, leaving it with some excess cash to fund its expansion efforts.
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The company did experience some foreign exchange headwinds and lower solar energy resources in some of the regions where it operates. However, it offset those negatives thanks in part to higher availability levels at its transmission lines and water assets. Furthermore, it's worth noting that it didn't experience any material impact from the COVID-19 outbreak during the quarter as its infrastructure assets are essential and backed by long-term, fixed-rate contracts that insulate it from near-term pricing and volume fluctuations.
A fully charged growth engine
Atlantica also continued to make progress on its expansion strategy during the first quarter. It was able to extend its option to buy out the tax equity investor in Solana, which is a U.S. solar energy project. It now has until August to decide whether to spend $300 million on that acquisition, which could generate a double-digit CAFD yield or at least $30 million in annual CAFD.
That bought it time as it works on other transactions and financing. In April, for example, the company created a renewable energy platform in Chile with other financial partners. They made their first acquisition, which was a $5 million investment in a solar energy plant in the country. Atlantic holds a 36% stake in this partnership, which has a long list of opportunities in the pipeline.
Meanwhile, Pemex Transportation System (PTS), which is a natural gas transportation platform in the Gulf of Mexico, started commercial operations during the first quarter. Atlantica previously agreed to increase its interest in PTS from 5% to 70% after it entered service and expects to complete that transaction by the third quarter. It will likely purchase the remaining interest in one year, bringing its total equity investment in PTS to about $150 million.
Finally, the company took steps to boost its liquidity in April by completing a recapitalization of its solar assets in Spain. That transaction will provide it with $143 million of capital that it can invest in new opportunities. Add that to the more than $400 million of liquidity it had at the end of March as well as its low corporate leverage ratio of 2.4 times net debt to CAFD, and Atlantica has ample financial flexibility to continue expanding its portfolio and cash flow.
A sustainable income stream with upside
Atlantica Yield has a resilient business that generates contractually secured cash flows from sustainable infrastructure. On top of that, it has a growing pipeline of expansion opportunities, and the financial flexibility to pursue them, which should boost its CAFD in the coming years. That could enable the company to grow its high-yielding dividend, making it a compelling option for income-seeking investors.
