NextEra Energy Partners (NYSE:NEP) executed exceptionally well in 2019, considering that one of its largest customers, California utility PG&E (NYSE:PCG), went bankrupt. The clean energy infrastructure company offset that headwind by completing two needle-moving transactions -- deals that generated significant earnings and cash flow growth, which was evident in its fourth-quarter results. Because of that, it not only delivered a 15% dividend increase last year -- pushing the yield up to its current 3.7% -- but will also have enough fuel to increase its payout another 12% to 15% this year even if it doesn't make any more moves. 

NextEra Energy Partners' numbers

Metric

Q4 2019

Q4 2018

Change

Adjusted EBITDA

$280 million

$165 million

69.7%

Cash available for distribution (CAFD)

$98 million

$44 million

122.7%

CAFD excluding Desert Sunlight

$101 million

$44 million

129.5%

Data source: NextEra Energy Partners. 

As the table shows, NextEra Energy Partners generated strong earnings and cash flow growth during 2019's fourth quarter, even before factoring out the impact of the Desert Sunlight assets tied to PG&E. Powering that growth was the acquisition of 600 megawatts of cash-flowing wind and solar projects from its parent NextEra Energy (NYSE:NEE), and the purchase of natural gas midstream company Meade Pipeline.

Those deals also helped drive significant full-year earnings and cash-flow growth. Adjusted EBITDA came in at $1.1 billion, up 25% from 2018's level. CAFD, meanwhile, was $408 million including Desert Sunlight and $366 million without, up 20% and 8%, respectively, versus 2018.

Wind turbines in a  green field with the sun setting in the background.

Image source: Getty Images.

A look at what's ahead for NextEra Energy Partners

NextEra Energy Partners ended the year with an annualized adjusted EBITDA run rate of between $1.225 billion and $1.4 billion, and CAFD of between $560 million and $640 million including Desert Sunlight or $505 million to $585 million without it. The company expects to end this year with similar run rates, assuming no additional acquisitions nor a resolution to PG&E's bankruptcy case. Even after excluding the cash flow associated with Desert Sunlight, the company can increase its dividend by another 12% to 15% this year, while keeping its payout ratio in the mid-70% range.

Looking further ahead, NextEra Energy Partners expects it will be able to increase its dividend at that same yearly rate through at least 2024. Several factors support that outlook:

  • It has a large pipeline of acquisition opportunities from its parent NextEra, given its growing portfolio of renewable energy assets.  
  • The potential for a positive resolution of the PG&E bankruptcy, which would unlock the cash flow of Desert Sunlight.
  • Organic expansion of its existing portfolio, including repowering more of its legacy wind farms.
  • The option for additional external acquisitions like Meade Pipeline.

The company has been putting itself in a position to capture this growth through some creative financing. During the fourth quarter, it closed a $750 million funding transaction on its Texas gas pipelines. The deal gave it the funds to pay off existing debt as well as finance an expansion project. Moves like that have enabled NextEra Energy Partners to continue rapidly expanding its clean energy portfolio even as it grows its dividend at a fast pace.

Lots of growth ahead for this high-yielding clean energy stock

NextEra Energy Partners did an excellent job navigating around the PG&E bankruptcy last year so that it could deliver on its dividend growth plan. The company already has enough power to continue increasing its payout at a high rate this year, which gives it time to find the right transaction and financing structure to continue growing it in 2021 and beyond. The increasing security of the company's high-powered dividend growth plan makes it an ideal stock for investors who want a rapidly growing income stream fueled by cleaner energy.