Collect Rising Payouts from This High-Dividend Stock
Is it possible for a company to offer a high dividend yield, good dividend safety, and capital gains potential all at the same time?
The answer is “yes,” and it’s from a company most investors likely haven’t considered.
The business in question rarely makes headlines, but has been raising its dividends every quarter since its initial public offering (IPO).
I’m talking about 8Point3 Energy Partners LP (NASDAQ:CAFD), a renewable energy partnership based out of San Jose, California.
Now, I know what you are thinking: “the renewable energy industry is not exactly known to be the best place for income investors. The cost of building solar and wind farms can be extremely high, leaving not much room for a dividend policy.”
The thing is, though, 8Poing3 Energy Partners is not the average solar stock. Rather, it is a yieldco joint venture between First Solar Inc (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR). The partnership does not actually build solar farms, but instead acquires, owns, and operates solar energy generation assets.
Generous Distributions
For income investors, the most obvious reason to consider 8Point3 Energy Partners is its attractive dividend yield. Right now, the partnership pays quarterly distributions of $0.2642 per share. At the current price, that translates to an annual dividend yield of 7.3%.
Of course, in today’s stock market, a high dividend yield could simply be a sign of trouble. But that’s not really the case for this high-dividend stock. In fact, one of the reasons why 8Point3 Energy Partners can offer such an impressive yield is its ability to grow its payout.
The chart below shows the partnership’s per share dividend since its IPO in June 2015:
8Point3 Energy Partners Dividend History
Source: “8Point3 Energy Partners LP Dividend Date & History,” NASDAQ, last accessed August 31, 2017.
As you can see, this high-dividend stock has raised its payout every quarter since the IPO.
The key reason why 8Point3 Energy Partners managed to achieve such impressive dividend growth is the nature of its business. When the yieldco was formed, its portfolio included interests in 432 megawatts of solar energy projects, 87% of which were utility-scale solar energy assets. The business is done through long-term contracts, mostly with utility and commercial customers. This allows the partnership to generate predictable, contracted cash flows.
Thanks to drop-down acquisitions, 8Point 3 Energy Partners have significant expanded its portfolio. By the end of the second quarter of 2017, the partnership’s portfolio consisted of interests in 945 megawatts of solar generating assets.
Activ Solar/Flickr
In the yieldco business, more assets could translate to higher cash flows, which could in turn translate to higher dividends. Indeed, the partnership expects to generate $100.0 million in cash available for distribution for full-year 2017. It also expects to achieve a distribution growth rate of 12% for the full year. (Source: “8Point3 Energy Partners Reports Second Quarter 2017 Results,” 8Point3 Energy Partners LP, June 29, 2017.)
And that’s not all. Other than its generous distributions, this high-dividend stock may also provide investors with some capital gains potential. In particular, the sponsors of this yieldco, First Solar and SunPower, are looking into potentially sell their stakes in the partnership. If 8Point3 Energy Partners gets bought out, existing shareholders may get a nice premium over the current stock price. If not, the stock’s 7.3% dividend yield and increasing payout should still make it worth considering ownership.
Also Read:
7 Energy Stocks That Pay Healthy Dividends