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Starting to get real interested in this company. Haven't bought yet.

Anyone have any opinions?
Has no dividend and negative free cash flow?

(09-30-2015, 08:20 PM)rapidacid Wrote: Has no dividend and negative free cash flow?

Haha...Allright smartypants Big Grin

Here's some context.

I am full to the gills with MLPs, as far as it looks to me Rich Kinder and Kelcy Warren will end up controlling all the pipelines in America and I'm fine with that. Natural gas looks like the next phase from the supermajors, CVX has the Gorgon and RDSB has BG etc. City buses run on CNG and LNG has plenty of uses. Coal with be replaced with natty gas in the energy grids.

HOWEVER there is a big push toward renewables and solar in particular. The supermajors are fully aware of this, the last BP report as well as Exxon's analysis both talk about renewables growing far more than traditional energy mix in the next decades. How to hitch my wagon to that growth, I wonder?

There have been these "Yieldcos" which may be a little shady. I don't know, that's why I bring it up here.

First Solar and Sunpower teamed up to create this yieldco, called 8point3 and tickered as CAFD (cash available for distribution I guess). First solar is legit, its supplying Apple with energy and whatnot, I've seen them around for a while (share price dropped from 120 to the teens in the past 5 years or so).

They are announcing their distributions now, I guess its an LP, and you're looking at a forward distribution of .88 which puts the current yield at around 8%. They IPOd at 21 a share and now they are nearly 11, they got cut in half in the recent kerfuffle.

The contracts they are getting look long term and any time I hear "22 year contracts" my ears perk up

"Once our initial portfolio reaches commercial operation this year, our assets are expected to generate approximately $70 million in annual CAFD with an approximately 22-year average remaining contract term. With a diversified solar asset portfolio across both the utility and distributed generation markets, an identified Right of First Offer (ROFO) portfolio of more than 1,100 MW and strong pipeline development efforts from our joint sponsors, we are well positioned to achieve our sustainable, targeted growth rates."

So I am screening this with our esteemed company...
Since I will eventually *depend* on my dividends to support all or a portion of my income at some point in the future it's imperative I invest in companies that have had the opportunity to go through a boom & bust lifecycle and proven they can maintain and expand their dividend.

Typically I like to see a company proving their dividend track record over at least a decade, tho I have certainly made exceptions in the past. 10 years gives a company a lot of time to allow s**t to hit the fan and see how they fare.

I haven't looked more than 90 seconds into this company, but assuming management has made explicit at best, or abstract at worst, statements indicating they will put their dividend on a pedastal and increase yearly going forward, you can easily see your greatest dividend growth in the early years of a company.

$100 in yearly dividends can easily turn into $1000 with no additional cash influx in the first 5 or 10 years of a young companies dividend march.

Quote:8point3 up 3.2% post-earnings; $0.22/share FQ4 distribution planned

Initially off following its FQ3 report, 8point3 Energy (NASDAQ:CAFD) has since risen to $10.95. The First Solar/SunPower (FSLR, SPWR) YieldCo still trades well below its $21 June IPO price.

8point3 has used its report to declare a $0.157/share prorated (post-IPO) distribution for FQ3, and forecast a $0.22/share FQ4 distribution (up 3.5% Q/Q after adjusting for prorating). Cash available for distribution is expected to rise to $14.8M-$15.2M from FQ3's $6.7M, and GAAP revenue to $4.9M-$5.1M from $3.1M.

Financials: FQ3 (ended Aug. 31) operating costs/expenses totaled $3.8M, nearly flat with the 3-month period ending Sep. 28, 2014. CAFD ended the quarter with $43.4M in cash, and $297.1M in long-term debt.

CEO Chuck Boynton: "As of the end of the third quarter 2015, we had 301 MW in production and expect an additional 131 MW of projects to reach commercial operation by the end of the year. Specifically, our 108 MW Quinto project remains on track to reach commercial operation on Oct. 31, 2015 and is already generating test energy prior to commercial operation. Once our initial portfolio reaches commercial operation this year, our assets are expected to generate approximately $70 million in annual CAFD with an approximately 22-year average remaining contract term."

I would be careful with solar yieldcos. Solar is dependent on favorable policies from congress and cheap debt to get the projects built. Should either of those go away or get reduced you could see problems down the road.

I also am suspect of the rosy generation projections out to 20+ years. Nameplate and actual production are much different, and I've already heard stories of facilities operating well below expectations. I see this is similar to the oil & gas trusts of a few years ago when shale boom was the hot ticket, many of those turned out very poorly for investors.

I always go with the mantra, "If it sounds too good to be true, it probably is". There just isn't a long enough track record for me, I'll stay on the sidelines.
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The facilities you've heard of with below predicted energy output are likely experimental technologies like concentrated solar. Photovoltaic system design and engineering is a mature field and the technology is commoditized. Professional developers (all the big players) are good at modeling energy output, the software is sophisticated, and the actual production is generally at or above expectations.

Renewables are steamrolling the market share of new generation coming online in the US; in 2014 I think it was something like 50% of new generation was from wind and solar, and the first half of 2015 is about 75%. Subsidies have been and will continue to decline or be unpredictable, but the cost of deployment has and will continue to fall rapidly as well, particularly in solar. Renewable energy is necessary in order to cut emissions, but it is increasingly the market, rather than incentives, driving expansion.

There is a list of yieldcos to choose from. NYLD (spun off from NRG) was the first back in 2013, followed by PEGI, TERP, GLBL, CAFD, and a few others I'm probably forgetting. Their share prices have tanked recently due to too much market supply from all the IPOs, the recent sector flight away from high yield that has also hit MLPs, and the market pullback generally.

I own a large position in PEGI, partly because I've owned it since 2014. The dividends are paid as return of capital. Another way to play the space is to buy the developers building and selling projects to the yieldcos, although then you get no yield.
Thanks RapidAcid, Earthtodan, and EricL. A pleasure to read all of your feedback. I relate to all of the points, including orthodoxy regarding sticking to companies that have ten year dividend history, prudence regarding promises from management, and ETD's macro view.

I ultimately bought a small position today. I look at it as a positive risk/reward skewed trade. It fell nearly 50% from the IPO, and it has decent names behind it (FSLR and Sunpower), so if it goes back to 15 or so, I may sell it. Also the public excitement toward solar and renewables etc (that same excitement causes me to buy RDSB, CVX etc because they are hated, similar to tobacco in the 90s) makes me feel that there is more upside than downside in the share price.

So to me this is just a small position that my fingers are wrapped a little looser around than, say my prodigious positions in PM, PG, WBA, CVX, KMI etc. I may keep, I may sell in the future.

Note to the newbies: I have 73 hardcore DGI positions in my portfolio so I can afford to take a little gamble. If I were in the beginning accumulation phase of a DGI portfolio I probably wouldn't touch this company.

I guess bottom line this thing has around 10 years depreciation to use, i recall reading? Something like that? So I'm good for a couple years here, collecting a nice yield and looking at where the share price goes. And if it really turns into a respectable cash flow, with 22 year solar contracts...So be it, too.

Thanks again guys. Great to hear all of the points, all of which I agree with.
Article about concerns with Yieldcos. Buyer beware, due diligence necessary, etc.
A new article by Tom Conrad on yieldco prices:

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