What: June was a tough month for renewable energy stocks, and even a relatively stable yieldco like NRG Yield couldn't escape the decline. Since the start of last month, NRG Yield's stock is down 18.7%, and the factors driving the stock down don't appear to be slowing anytime soon.
So what: There hasn't been any major change in NYRG Yield's business over the past month, so what's driving the stock is external. Two factors -- rising interest rates and falling oil prices -- have made this yieldco less attractive to investors whether they impact earnings or not.
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In the case of oil prices, there's no real correlation between renewable energy assets that NRG Yield owns under long-term contracts, and falling natural gas prices will actually make that fuel cheaper for the company's fossil fuel plants in the future.
What could impact that company longer term is interest rates, and here's where the market may have a reason to sell off the stock. Debt is used to finance power-generating assets, and renewable projects in particular rely on low borrowing costs to remain competitive. If borrowing costs rise in the future, these projects won't make as much money for NRG Yield -- and they could even reduce payouts.
Now what: At this point, there's nothing fundamentally wrong with NRG Yield, and I think the market is selling it prematurely. For investors willing to buy on the dip, the stock has an implied yield of 3.5%, and most of its assets are under contract for many years to come. If you're looking for yield that's an attractive rate, and with energy stocks down across the board, this may be one of the safest yields in the industry.
The article Why NRG Yield, Inc.'s Shares Have Plunged This Summer originally appeared on Fool.com.
Travis Hoium owns shares of NRG YIELD INC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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