Yield co

A yield co is a company that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. Separating volatile activities (e.g. Development, R&D, construction) from stable and less volatile cash flows of operating assets can lower the cost of capital Yield cos are expected to pay a major portion of their earnings in dividends, which may be a valuable source of funding for parent companies which own a sizeable stake.

Yield cos are commonly used in the energy industry, particularly in renewable energy to protect investors against regulatory changes. They serve the same purpose as master limited partnerships (MLPs) and real estate investment trusts (REITs), which most utilities can't form due to regulatory constraints. Yield cos give investors a chance to participate in renewable energy without many of the risks associated with it.

The number of yield cos grew rapidly in 2013 and 2014 through initial public offerings. They include:

There is also an ETF (Exchange Traded Fund) that was set up by Global X Funds under the ticker Symbol YLCO, which seeks investment results that correspond generally to the price and yield performance, of the Indxx Global YieldCo Index.

Deutsche Bank mentioned several benefits of creating yield cos for their parent companies:

Deutsche Bank, Crossing the Chasm (February 2015) —

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