The Yieldco Virtuous Cycle


The end of 2020 looks like it may have set the stage for a new Yieldco boom, with rapidly rising stock prices leading to new investment and rapid dividend per share growth. If this virtuous cycle emerges, the Yieldcos to own will be the ones with the lowest yields and the highest potential for compound dividend growth.

Unfortunately, a Yeildco boom is not certain. Higher yield Yieldcos will also benefit from a boom as investors attracted by the leaders look for diversification in the space, but they offer more safety. If a new Yieldco boom fails to emerge or turns to a bust, more value priced Yieldcos like CVA, GPP, and AGR have less far to fall.  

Brookfield Renewable Energy Partners (BEP) is one of the Yieldcos that saw the largest rise (69%) in the second half of 2020. It has the advantage over other Yieldcos that it can raise cash through the sale of shares of the even more highly valued Brookfield Renewable Energy Corp. (BEPC) shares, which are up 126% over six months and now trade at a 35% premium to BEP.  BEP shares can not only benefit from a renewed Yieldco boom, but can also benefit from any narrowing of the BEPC/BEP share price premium, which I believe is too large to be sustainable.


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Disclosure: Long CVA, GPP, AGR, BEP, BEPC. Short calls on BEPC.

Disclaimer: Past performance is not a guarantee or a reliable indicator of future results.  This ...

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