One Energy Dividend You Shouldn't Overlook

An industry leading yieldco has been thrown out with the energy bathwater.

Travis Hoium
Travis Hoium
Oct 7, 2015 at 2:40PM
Energy, Materials, and Utilities

How strange have energy markets become? What if I told you that there was a company with revenues that are all but guaranteed (and growing) over 22 years, and that it comes with a greater than 7% dividend yield? Is that something you might be interested in? 

That's not a theory, that's a reality for 8point3 Energy Partners (NASDAQ:CAFD), the yieldco launched this year by SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR) earlier this year. The company reported earnings on Wednesday and showed just how wild the sell-off in solar stocks has gotten despite the stability in the industry's cash flows.  

Building a solar yieldco
The first thing to look at is what 8point3 Energy owns. In the chart below, you can see that the company will have a 432 MW portfolio of assets completed at year's end, 301 MW of which was operational at the end of the third quarter.

Image: 8point3 Energy Partners.

Those projects generated $3.1 million in revenue, $9.7 million in adjusted EBITDA, and $6.7 million in cash available for distribution in the quarter. Yieldcos have a complex structure, but the reason revenue, EBITDA, and cash available for distribution seem out of line is the fact that many projects aren't consolidated into the income statement. So the company may get cash and net income from a project, but not revenue based on GAAP standards.

Those figures resulted in a $0.157 per share payout for the quarter, which is expected to grow to $0.217 in the fourth quarter. Yes, on a forward yield basis, 8point3 has a greater than 7% yield as of this writing.

A cash flow machine
Since a yieldco is supposed to generate cash, it's important to know what the long-term cash generating profile looks like. Below is a chart from the conference call that shows how much cash is expected to be generated in the next three years, which is impressive when you consider that the company is worth just $223 million on the public market (not including the 51 million B shares owned by the sponsors).

Image: 8point3 Energy Partners.

These aren't just promises from projects that are yet to be built from funding that doesn't exist -- management said it can buy everything outlined in the chart above with the funding it already has, and won't need to raise equity capital until at least the second half of next year. And the projects are contracted by two stable sponsors. 

Where is the cash coming from?
The other thing 8point3 Energy Partners has done better than most yieldcos is outline where its cash is coming from and how it will grow over time. You can see in the chart below where the company's cash for distribution will come from over the next three years, including cash from projects it isn't consolidating.

Image: 8point3 Energy Partners.

This is an important chart because it lays out in simple terms what the company's cash flow will be. Remember, this is for projects that are already on the balance sheet or for which it has funding available, so there's very little risk the company will miss these figures.

A dividend machine
If you're looking for a dividend stock that has a solid yield, a chance for growth, and long-term stability I can't think of a stock better than 8point3 Energy Partners. The high yield based on the Q4 2015 payout is outstanding, and with cash flows expected to grow 15% over time there's growth built in as well.

Energy stocks have sold off on the low price of oil, but solar projects aren't affected by oil -- and that makes this a stable stock you can hold for years to come.