Compared to the peak of the Yieldco bubble in May, many Yieldcos have dropped by more than half, and most by more than a third.
Some of this decline is because rapid dividend growth depends on an endless supply of cheap investor capital– which is another way of saying that we can have rapid dividend growth or high dividend yields, but not both.  Part of the decline was due to the realization that many Yeildcos (most notably Terraform Power (TERP), Terraform Global (GLBL), and Abengoa Yield (ABY)) were not immune to the financial problems at their sponsors, and so they were far more risky than many investors previously thought.

These problems affect different Yieldcos differently. NextEra Partners (NEP) has a strong sponsor, others (Brookfield Renewable Energy Partners (BEP) and Hannon Armstrong Sustainable Infrastructure (HASI)) develop projects internally, while Pattern Energy Group (PEGI) has a private sponsor, with very strong investor protections in place to protect investors from conflicts of interest.  While these Yieldcos have fallen as investors began to demand higher current yield instead of only the promise of rapid future yield growth, they are much less vulnerable financial difficulties at their sponsors.

These effects can be seen in the following chart, which shows that Yieldcos with high expected growth, and/or public sponsors have fallen the farthest since the peak of the Yieldco bubble in May.

With Yieldcos having declined so much, there is likely opportunity, but is it in the giant declines of the riskiest Yieldcos, or the smaller declines of the safer ones?  

Valuation With The Dividend Discount Model

The answer lies in valuation. For income stocks like Yieldcos, the dividend discount model (DDM) is by far the best valuation method. DDM valuation requires us to estimate future dividends, and also choose a required rate of return (discount rate) which should be higher for riskier Yieldcos. If we choose our discount rate to accurately reflect the likely risks, we can use DDM to compare valuations of Yieldcos with entirely different risk profiles.

Below are my estimates of Yieldcos’ dividend growth rates going forward: