TerraForm Power Buyout Complete -- Here’s What the Future Looks Like

TerraForm Power Buyout Complete -- Here’s What the Future Looks Like

Brookfield Asset Management's (NYSE: BAM) buyout of a controlling interest in TerraForm Power Inc (NASDAQ: TERP) is complete, and we now have a better idea of what the company, and its stock, will look like long-term. TerraForm Power won't be the high-growth yieldco SunEdison originally intended it to be, and will instead be a much more conservative company. For better or worse, that's what investors are getting. 

Image source: Getty Images.

The two things investors need to understand about a yieldco is how much of cash available for distribution (CAFD) is actually paid out to investors and how quickly management expects to grow. A high payout ratio (90% or more) can mean higher risk because management won't be paying down debt or growing organically. A high growth rate (over 12%) means management is relying on issuing stock to fund acquisitions, something TerraForm Power relied on heavily when SunEdison ran it.

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Source: Fool.com