When markets turn or point in a new direction, Wall Street does a pivot and brings about products which will generate income in that direction. The fall of the interest rates lead to investors wanting vehicles to generate income similar to what the governments were paying. The easiest choice was utility companies which sell renewable energy – divide the companies into parts. The developer of the power source would sell the power to the yield company which would offer steady, sustainable dividends thanks to the selling of the power to the government which offered higher rates than selling to the public. Within a short time there were many yield companies and all were happy. Now some stocks have fallen for energy prices have fallen and governments are wondering about their subsidies.

David Milstead wrote a column Yieldcos are not such a safe investment afterall and he quotes analysts Andrew Hughes and Brian Chin of Merrill Lynch is that after dislocations (stock price going down) you should own the tail with the strongest dog. What they mean is a yieldco is often only as good as its sponsor or parent, that is selling assets to it. For the company to grow it needs a good pipeline and sometimes its parent had some wonderful assets but there is a delay in building more. Companies such as TerraForm Global and TerraForm Power spun from SunEdison had lots off problems. Companies similar to NextEra Energy Partners sponsor is Florida based NextEra Energy Inc and NRG Yield from NRG Energy Inc of New Jersey are able to have good flow throughs from parent to yieldco.

Linking to dividend paying stocks, when energy prices are high, people look for alternatives and governments want to encourage less energy usage from oil which can be a good thing. It usually takes a couple of years to see if companies business model makes sense for a longer period of time. While you may love the concept, only nibble to see how the business model works; when you see it does for the longer term jump in. Patience is often a virtue in keeping money.

There are more questions than answers, till the next time – to raising questions.