While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of NRG Yield climbed 3% today after Goldman Sachs upgraded the renewable power company from neutral to buy.
So what: Along with the upgrade, analyst Neil Mehta boosted his price target to $41 (from $30), representing about 21% worth of upside to yesterday's close. While value investors might be turned off by the stock's big run since its July IPO, Mehta believes that there's plenty of room to run given NRG's juicy dividend growth potential and low-risk business model.
Now what: Goldman's valuation estimate seems reasonable. "The increase in our price target reflects (1) an increase in our target EV/EBITDA multiple to reflect dividend growth potential and (2) a decrease in our target yield from 4.75% to 3.5%, the median of first quartile dividend growers among utilities/MLPs," noted Goldman. "We do not incorporate any potential from NRG's proposed acquisition of EME or ROFO drop-downs in our estimates and valuation." When you combine those reasonable assumptions with NRG Yield's stable portfolio of assets, I'd have to agree that the risk/reward trade-off looks attractive.
More compelling income opportunities
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.
The article Why NRG Yield Is a Powerful Pick originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.