8point3: Where Do I Go From Here?
Summary
- 8point3 is going private meaning capital from shareholders will need to be recycled.
- Shareholders have three options for when to begin the process of recycling their capital.
- I present 3 lower risk and 3 higher risk options to recycle your capital into.
The Need for Change
Recent investors in 8point3 Energy Partners LP (NASDAQ:CAFD) were aware that both sponsors were looking to remove the yieldco from their balance sheets and were actively accepting offers to buy out 8point3. on Feb 5th, 8point3 announced it accepted an offer from Capital Dymanics for 12.35 per unit. This caused the share price to drop from $13.81 to $12.14 almost instantly. This sale is expected to be completed by Q2 or Q3 of 2018. 8point3 will continue to issue quarterly dividends at the same level as issued in January until the transaction is finalized.
This leaves shareholders with a few options:
1. Hold onto their shares until the sale finalized - collecting the associated dividends from 8point3.
2. Sell immediately and accept any potential loss up front to recycle capital immediately - forgoing any additional dividends.
3. Waiting to collect Q2 dividend and then selling out of 8point3 to recycle capital.
Investors, who have been loving the consistent dividend and associated increases given by 8point3, will be left looking for other options for their capital to continue to be rewarded, regardless of when they receive their capital back from the options above.
Lower Risk Options
8point3 consistently paid out its dividend close to the 100% of its CAFD. These options for moving on from 8point3 are of the lowest risk, and highest quality stocks.
Brookfield Infrastructure Partners LP (BIP) presents a unique opportunity to own a piece of a global infrastructure empire. They currently sport just over a 4.5% yield and plans to grow their dividend by 8% this year. The next dividend pays out on march 29th and the ex-div date was 2/28. One drawback for potential investors is that Brookfield Infrastructure Partners issues a K1 for US tax purposes if held in a non-retirement account.
Brookfield Renewable Partners LP (BEP) is the sister company of Brookfield Infrastructure Partners LP however it focuses entirely on renewable energy projects. It currently sports a yield of just below 6.5%. Management also plans to grow the dividend by 8% this year, and its dividend follows the same pattern as well as issuing K1 for US tax purposes.
PBF Logistics LP (PBFX) is a midstream MLP. They function similar to a toll road for energy companies to move oil, gas etc. from where they are drilled or gathered to refineries and then again to ports for shipping. PBF has raised its dividend every quarter for the last 11 quarters and has no sign of stopping. It also issues out a K1 for tax purposes in non-retirement accounts but also yields the highest of the lower risk options at 9.7%.
Higher Risk Options
Many considered 8point3 to be a higher risk stock due to its consistent paying out of almost all of its CAFD. These options are tailored to investors seeking a possible higher return on their investment but who can withstand either higher volatility or a longer outlook.
Uniti Group Inc (UNIT) is a REIT that focuses on telecommunication infrastructure focusing on fiber optics and cell towers. Uniti's stock price has been depressed by the legal and financial woes of its largest tenant Windstream (WIN) but its fundamentals and revenue continue to improve. Uniti sports a 15% yield as it races to diversify itself away from being primarily dependent upon Windstream. I wrote an article recently looking into Uniti's most recent earning call that can be found here.
Covanta (CVA) is an often forgotten company in a niche market. It focuses on Waste to Energy services from management and operating facilities to developing and building additional Waste to Energy power plants. Covanta yields 6.6% and has a strong financial outlook with a new joint venture to complete 5 additional projects in the United Kingdom. A closer look can be seen here.
Pattern Energy Group Inc. (PEGI) is another Yieldco which has taken a beating lately. Pattern had grown a loyal following of investors interested in the dividend. Pattern had raised their dividend for 12 straight quarters, then they didn't this last quarter. This action of not raising the dividend caused a reactionary sell off dropping the share price to the $16.80 range the next day. The share price hasn't fully recovered so instead of averaging a yield of 7%, Pattern now has a yield of 9.9%! Management did not raise the dividend since they have a goal to bring their CAFD down to the 80% range, 2017 it was close to 100%. Pattern suffered revenue loss from the hurricane damage in Puerto Rico last year into the beginning of this year, however that impact should be reduced as Puerto Rico's power grid re-stabilizes.
Investor Takeaway
Transitioning from one beloved dividend payer to another company or companies can be a tough process of vetting potential choices thoroughly. Hopefully this list of six companies gives you choices to focus on and evaluate. I strongly believe in investing reliable dividend paying companies either for immediate high yield income or strong dividend growth prospects. These six companies offer options in both categories with various degrees of risk/reward. I personally would buy into any of these, and own shares in most.
This article was written by
Treading Softly, aka Scott Kaufman, learned about investing first hand while working at Regions Bank and currently works at the world's largest credit union as a financial analyst. He targets high-yield investments in pursuit of immediate income.
Treading Softly contributes to the investing group High Dividend Opportunities led by Rida Morwa and a team of other top Seeking Alpha income investing analysts. The service focuses on sustainable income through a variety of high yield investments with a targeted safe +9% yield. Features include: model portfolio with buy/sell alerts, preferred and baby bond portfolios for more conservative investors, vibrant and active chat with access to the service’s leaders, dividend and portfolio trackers, and regular market updates. The service philosophy focuses on community, education, and the belief that nobody should invest alone. Learn More.Analyst’s Disclosure: I am/we are long UNIT, CAFD, BIP, BEP, PEGI, PBFX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (69)
the dividends are known (28.02 cents)
the cash accretion is known (an additional amount that is issued and outstanding immediately prior to the OpCo Merger 1 Effective Time equal to (i) (A) if the Closing occurs on or prior to May 31, 2018, (1) $0.135, plus (2) the product of (x) the number of days from and including March 1, 2018 through and including the Closing Date multiplied by (y) $0.0021, or (B) if Closing occurs after May 31, 2018, (1) $0.3282, plus (2) the product of (x) the number of days from and including June 1, 2018 through and including the Closing Date multiplied by (y) $0.0045, minus (ii) any distributions paid or, if the applicable record date has occurred prior to the OpCo Merger 2 Effective Time, declared by OpCo after January 12, 2018 (including, for the avoidance of doubt, any Unpaid OpCo Distribution);
Merger Doc“OpCo Merger Consideration” means, with respect to each OpCo Unit, an amount in cash equal to the sum of:
(a) $12.35; plus
(b) an additional amount that is issued and outstanding immediately prior to the OpCo Merger 1 Effective Time equal to (i) (A) if the Closing occurs on or prior to May 31, 2018, (1) $0.135, plus (2) the product of (x) the number of days from and including March 1, 2018 through and including the Closing Date multiplied by (y) $0.0021, or (B) if Closing occurs after May 31, 2018, (1) $0.3282, plus (2) the product of (x) the number of days from and including June 1, 2018 through and including the Closing Date multiplied by (y) $0.0045, minus (ii) any distributions paid or, if the applicable record date has occurred prior to the OpCo Merger 2 Effective Time, declared by OpCo after January 12, 2018 (including, for the avoidance of doubt, any Unpaid OpCo Distribution); minus
(c) an amount calculated by dividing the OpCo Merger 1 OpCo Distribution by the number of OpCo Units owned by the Sponsor OpCo Owners that are issued and outstanding immediately prior to the OpCo Merger 1 Effective Time.
