Yieldcos have had a terrible run lately, with some stocks falling 50% or more in the last few months alone.
But the drop in stock prices could be a buying opportunity for investors willing to take a long-term view of these cash-generating companies. After all, yieldcos own projects with contracts that can be 20 years or longer, so cash flows should be coming in for a long time. Here are three I think investors should look at today.
8point3 Energy Partners
The newest yieldco to the market is 8point3 Energy Partners (NASDAQ:CAFD), a yieldco formed by SunPower and First Solar. Having two big name sponsors with long track records of success in the solar industry should give the company some stability, but it's also structured differently than many yieldcos today.
8point3 Energy Partners is different than a lot of other yieldcos because it's not as worried about growth as it is about buying projects that will generate long-term value. The dual sponsor structure ensures that it won't overpay for projects, and management has committed to having a solid balance sheet, something not all yieldcos can say.
The stock has dropped from $21 per share at its IPO to $11.57 as of Friday's close, but that gives the stock a 7.3% dividend yield based on management's projected initial payout. That's a solid yield for a rock solid yieldco.
For some international flavor, Abengoa Yield (NASDAQ:AY) owns solar, wind, water, and transmission assets in the U.S., Europe, and South America. That exposes the company to some currency risk, but it also gives investors a more international flavor in a yieldco, as well as a diverse group of assets.
Its relationship with Abengoa also creates a pipeline of projects to buy in the future. But what's most impressive about Abengoa Yield today is that the company is generating cash at a rate of $83.1 million in the first half of the year, and just increased its dividend to $0.40 per share for the second quarter. That's an annualized yield of 9.1%, an incredibly high yield for a stock today. That should put it on income investors' radars.
The real pioneer of yieldcos is NYG Yield (NYSE:CWEN), and it isn't the typical yieldco you see launching today. It owns renewable energy assets, but it also owns fossil fuel assets like natural gas power plants. In fact, of the 2,985 MW in net generating assets the company owns, 1,460 MW come from fossil fuel generation.
This may make NRG Yield a less "green" yieldco than its competitors, but it gives the company tax advantages as well. With up and running natural gas assets that generate net income, the company itself can use the tax benefits of future solar projects internally rather than sell them to third parties as most yieldcos do.
Keeping tax benefits may not be all that much of a differentiator today, but in 2017 when the ITC falls it could be a way to both help fund projects internally and justify more acquisitions. When tax incentives change investors tend to get skittish, so being aggressive over the next few years could pay dividends.
NRG Yield's dividend yield of 6.3% on an annualized basis after the most recent $0.20 per share dividend isn't the best yield in the industry, but the company has a longer history than most yieldcos and solidly profitable operations. That's something that should ease investors' fears in this asset class.
Yieldcos are down but not out
The market seems to have thrown yieldcos out with the rest of energy stocks in 2015, but that doesn't mean their investment thesis has changed. Most of the assets companies own have long-term contracts, which means operations should be smooth and dividend payouts will be predictable for years to come.
If you haven't joined the yieldco bandwagon yet, now may be a time to take a closer look.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.