In May, the Global X YieldCo Index ETF (NasdaqGM: YLCO) came to market as an avenue for helping investors access the burgeoning yieldcos asset class.
“YieldCos are formed when energy companies spin off fully developed assets, such as wind and solar farms, with long term contracts and an objective of returning cash flows to shareholders. Market capitalization for the YieldCo industry currently stands at $39 billion. With 11 announced IPOs in the pipeline, it has become an increasingly popular vehicle for energy firms,” according to a statement issued by Global X.
YLCO, which tracks the Indxx Global YieldCo Index, is home to 20 stocks with the ETF’s top 10 holdings combining for nearly 65.7% of the fund’s weight. Some of YLCO’s largest holdings include TerraForm Power (NasdaqGS: TERP), Brookfield Renewable Energy Partners (NYSE: BEP), SuneEdison (NasdaqGS: SUNE) and First Solar (NasdaqGS: FSLR). [Solar ETF Lessons]
“By design, YieldCos have significantly lower risk profiles than their parent companies, as they typically contain only stable energy producing assets with predictable cash flows, and are not involved in the riskier business of bringing new projects online. Additionally, their primary focus is on distributing available cash flows to shareholders, rather than reinvesting in new technologies or building new projects,” according to Global X.
However, at least one analyst sees risks to yieldco dividend growth.