Yieldcos are companies which own clean energy assets and use the cash flows from them to deliver a high level of current dividend yield and (in some cases) the promise of significant dividend growth. Investors like them because yield is scarce in the current low interest rate environment.
While investors like the relatively high yield offered by yield cos, they are only starting to discriminate between yield cos on the basis of current and future dividends. Four months ago, I published the following chart and noted that the yield cos with the highest current and expected yields were the most attractive.
Click on picture to enlarge
They were (from most to least attractive): “TransAlta Renewables [TSX:RNW, OTC:TRSWF], Hannon Armstrong [NYSE:HASI], Capstone Infrastructure [TSX:CSE, OTC: MCQPF], Brookfield Renewable Energy Partners [NYSE:BEP, TSX:BEP], Primary Energy Recycling [TSX:PRI,OTC:PENGF], and Innergex Renewable Energy [TSX:INE, OTC:INGXF].”
In the four months since then, the six yield cos I listed have produced an average total return of 3.9%, compared to the remaining five, which lost an average of 5.3%, even after the payment of dividends. These relative moves make current pricing slightly more rational, but a mere 9% relative move is not nearly enough to correct the mispricing in this new and still misunderstood sector of clean energy investing.
Below, I will present an updated version of the same chart, accounting for dividend increases and price moves in the meantime, along with a couple corrections about plans for dividend increases at Abengoa Yield (NASD:ABY) and NextEra Energy Partners (NYSE:NEP). Note that while correcting these mistakes would have made ABY and NEP relatively more attractive, they were overpriced relative to my six picks, just less overpriced than I thought. NEP remains relatively overpriced today. I also incorrectly showed Pattern Energy Group (NASD:PEGI, TSX:PEG) as a US-listed company when, in fact, it is also listed in Canada. I've corrected these mistakes in the following chart:
