Angie Storozynski, an analyst at Macquarie Research, said that recent price declines have more clients asking about the sector.
"We’ve seen a lot of interest in yieldco stocks as of late given the sharp pullback in the names, which seems driven by their limited liquidity and some global growth worries," she said.
Abengoa Yield, whose portfolio of assets includes a solar farm in the Mojave desert, wind farms in Uruguay and electric lines in Peru, now makes up his second-largest position, just behind Apple Inc. Based on conversations with Abengoa Yield, he expects the company to raise its annual dividend payout to $1.68 per share from its current $1.04 per share by 2016, which would increase its dividend yield to nearly 6 percent from its current 3.2 percent, based on its current share price.
With Abengoa, "you have a very stable asset base and contracts with an average life of 26 years, plus inflation escalators," Moore said. "As long as Abengoa keeps completing projects that they can sell to the yieldco, which they have done for 70 years, we have no doubt that its asset base will grow."
Growth Questions
Acquiring additional assets in order to raise their dividend payouts is a chief aim of yieldcos.
Storozynski, the Macquarie Research analyst, initiated coverage of the sector on September 17, giving those yieldcos with a strong parent company and a proven development pipeline such as NextraEnergy Partners and NRG Yield an outperform rating. She gave Pattern Energy and other independent yieldcos a 'hold' rating, largely as a result of the fact that they may not have a right of first refusal to buy completed projects from a parent company such as SunEdison.
"The role of a sponsor as a growth driver grows in importance as public yieldcos multiply, inflating the value of contracted renewable power projects. The yieldcos relying predominantly on third party acquisitions for growth should therefore rush to secure growth projects, even if they feel that current project valuations look bloated," she wrote in a Sept 17 note to clients.
The competition among yieldcos to buy assets, thereby boosting prices, is giving some investors in the alternative energy sector pause.
"For me the big worry about these assets is that they will have to reinvest incredibly well over time to justify their prices," said Edward Guinness, who runs the Guinness Atkinson Alternative Energy Fund and invests in several solar companies. "I am skeptical as to whether in 20 years time these companies will be persevering and returning capital at the forecast rates."