“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.
Yieldcos are comparable to master limited partnerships (MLPs), an asset class that has been widely embraced by income investors in recent years. YieldCos are typically lowly correlated to traditional equities and do not generate the pesky K-1 tax forms investors in individual MLPs have to deal with every tax season. [Solar ETF Lessons]
The New York Times notes slumping shares prices for yieldcos have forced dividend yields up to the point that borrowing money or issuing equity has become cost-prohibitive. Even with the headwinds, YLCO is up nearly 13% over the past week.
Global X YieldCo Index ETF
