In a stock market that is very antsy, newer technologies like alternative energy always seem to get hit hard when volatility starts to rise, despite the fact that the fundamentals for the industry as a whole are very positive. Merrill Lynch recently hosted investors and management teams representing a broad cross-section of the alternative energy value chain, from technology providers to developers, asset owners and operators, as part of the firm’s alternative energy conference. They gleaned valuable insight and are very positive long-term on the potential.
The Merrill Lynch team cited the obvious areas like commodity price weakness, the overall energy sell-off and a big increase in supply via stock issuance as reasons for the pounding many of the top stocks in the sector have taken. They think that five stocks look very appealing at current trading levels, we narrowed the list down to the three yieldcos with outstanding dividend payouts and that are rated Buy.
This stock is down over 40% since early June. Abengoa Yield PLC (NASDAQ: ABY) is a total return company that owns a diversified portfolio of contracted renewable energy, power generation and electric transmission assets in North America, South America and Europe. The company is focused on providing a predictable and growing quarterly dividend or yield to shareholders and has really taken a share price bath for little if any reason.
Some analysts on Wall Street see the company’s dividend rising to as high as the 9% range by 2018, and some are expecting 10% to 20% dividend growth from the company over the next two years. We recently covered the fact that the yieldcos may be worth much more than the market is currently giving them credit for.
Abengoa investors are paid an incredible 7.1% distribution. The Merrill Lynch price target was recently dropped to $30, but the firm remains positive on the long-term outlook. The Thomson/First Call consensus price target is much higher at $37.76. Shares closed Friday at $22.52.