Investors have warmed to clean-energy spinoffs, attracted by
the cash generated from projects and returned to shareholders as
These companies are known as yieldcos for their higher yields
The cash comes from projects developed and handed over by
their parent companies, or sponsors. Many of the projects are in
sustainable energy areas such as solar and wind.
One of several such U.S.-listed initial public offerings that
debuted recently isAbengoa Yield (
The company owns and operates renewable energy, conventional
power and electric transmission assets in the Americas and
It had its
on June 18 at 29, above its expected range. Shares now trade near
Abengoa Yield was spun off fromAbengoa (
) -- a Spanish engineering and construction firm -- to own,
commercialize and operate a portion of Abengoa's assets.
Other renewable-energy spinoffs listed in the U.S. over the
past year includeNRG Yield (
),Pattern Energy Group (
),NextEra Energy Partners (
) andTerraForm Power (TERP).
From its parent, Abengoa Yield received 10 assets, including
solar projects in Arizona, California and Spain, and a wind farm
The largest project in operation, a 280-megawatt solar power
plant in Arizona known as Solana, will soon be joined by an
equally large solar plant expected to go online in Southern
California by October, called Mojave. Solana went online last
About 70% of the company's assets are in renewable energy. But
since the big solar plant in California is not yet commercial,
just under half of Abengoa Yield's revenue comes from renewable
The rest is from conventional power in Mexico -- contracted
for sale to the state-owned petroleum company Petroleos
Mexicanos, or Pemex -- and electric transmission lines in Peru
That's just a start. Abengoa Yield's sponsor expects to
transfer eight more assets in 2015 and 2016.
"The assets to be dropped down are pretty sizeable," Shelby
Tucker, an analyst with RBC Capital Markets, told IBD. "The
company is going to be able to grow the dividend meaningfully
over a number of years."
In an investor fact sheet, Abengoa Yield said it expects the
current 10 assets to provide a "predictable cash flow stream" for
"Other yieldcos tend to be 18 to 20 years," Tucker said.
Abengoa Yield also targets a high 90% payout ratio on its
cash. That's at the top end of its peers' 80% to 90% range, noted
Sean McLoughlin, an analyst with HSBC Global Research, in a
recent research report.
As attractive as renewable energy is, the company's other
power assets also have their strong points.
McLoughlin noted that Abengoa Yield's power-transmission
assets not only generate stable cash flow as regulated assets,
but also are tied to "growing electricity demand in emerging
markets such as Peru and Chile."
In its recently released first financial report as a publicly
traded company, Abengoa Yield confirmed that it would target $92
million in cash available for distribution in the 12 months
ending June 30, 2015, and $150 million in the 12 months ending
June 30, 2016.
The company saw an increase in cash flow and revenue in the
first six months of 2014 as several energy assets reached the
Operating cash flow more than doubled from a year earlier to
$137 million during the first six months of the year. Revenue was
up 92% to $169.8 million.
But because of ramp-up costs to commercialize assets, the firm
posted a net loss of $28.2 million.
Still, cash is king, and with more cash generated from
operations, Tucker figures that dividends will increase at least
15% a year over the next four to five years.
Abengoa Yield plans to start paying a dividend in the third
quarter at $1.04 per share on an annualized basis.
Based on a recent stock price of 35.50, the dividend implies a
2.9% yield, Tucker says.
He estimates the dividend will spike to $1.75 per share next
year to reflect Mojave's solar-power contribution. All else being
equal, it would increase the yield to 4.9% based on the recent
35.50 share price, he says.
Unlike other energy-related yield companies whose assets are
largely in North America, many of Abengoa Yield's are further
afield. The distance between them reduces the risk of problems in
New assets from the parent over the next couple of years are
expected to include projects in Europe, Africa, the Middle East
and South America, including Brazil.
Abengoa Yield may also buy assets from third parties on the
"We expect the growth strategy to be fairly aggressive,"
Since the parent company is a majority shareholder in Abengoa
Yield, it is in the parent's interest "to price competitively for
(Abengoa Yield)," McLoughlin added.
Abengoa Yield had consolidated debt of $2.5 billion as of June
30, down from $2.9 billion as of Dec. 31. Cash and cash
equivalents came to nearly $500 million.
The pipeline from the parent includes at least one water
treatment plant, McLoughlin notes. He says Abengoa is building a
portfolio of water treatment projects that it can "sell down" to
"Asset acquisitions are now the key potential catalyst going
forward," he said.