Renewable-energy investing has long been the domain of growth-oriented investors who have the stomach for the industry's ups and downs. But a new breed of income-producing alternative-energy stocks is designed to appeal to more conservative dividend investors. "Yieldcos" operate wind, solar and other power-generation facilities whose customers enter into long-term purchase contracts. Those contracts provide steady revenues and allow the yieldcos to distribute most earnings to shareholders. "The yieldcos are becoming in some sense the utilities of the future," says Robert Muir, senior vice-president at Green Alpha Advisors, in Boulder, Colo. "They're solid dividend payers."
These vehicles have attracted income investors' attention over the past year as a growing number of energy companies spin off established power-generation facilities into yieldcos. Power projects still under development are housed in the parent company, thereby insulating yieldco investors from the riskier side of the business. In many cases, new power facilities developed by the parent company will drop down into the yieldco, providing additional steady cash flow and fueling dividend growth. Yieldcos established by large energy companies that have begun trading since last summer include NRG Yield (symbol NYLD), NextEra Energy Partners (NEP), Abengoa Yield (ABY) and TerraForm Power (TERP).
Source: Kiplinger
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