NextEra Energy Partners (NEP 7.94%) has grown its dividend at a brisk pace since coming public about five years ago, including by another 15% last year. The main power source during that time has been the acquisition of clean energy assets from its parent, NextEra Energy (NEE 1.13%).
Last year, however, was a bit different, as the company tapped not only that source but also two others: organic growth and external acquisitions. It was the first time in its history that it used all three sources to grow. And that means it has more than enough power to keep increasing its 3.7%-yielding dividend at a fast pace again this year.
The growth trifecta
Jim Robo, the CEO of both NextEra Energy and its subsidiary NextEra Energy Partners, commented on the latter's progress during the fourth-quarter conference call. He said that the company had a "terrific year of execution in 2019," as it "significantly grew" and "further diversified" its clean energy portfolio.
One thing that stood out was last year was the first one where "NextEra Energy Partners successfully executed on all of the three ways it can grow: Organically, acquiring assets from third-parties, and acquiring assets from Energy Resources' portfolio."
It secured its latest drop-down transaction with NextEra's energy resources segment in March when it agreed to acquire a portfolio of six wind and solar projects for $1.02 billion. One noteworthy aspect of the deal is that private equity giant KKR helped provide funding through a $900 million convertible equity agreement secured by those assets and four existing ones. Meanwhile, in October, it signed a deal to purchase Meade Pipeline, which owns a 40% stake in a natural gas pipeline. The company financed the $1.37 billion deal, which includes $90 million of future expansion-related spending, thanks in part to another convertible equity financing, this time with asset-management giant Blackrock. Finally, the company signed agreements to advance 275 megawatts of wind repowering projects, which followed 2018's move to organically expand some of its gas pipelines.
The power to continue growing
That trio of growth drivers helped power a 130% year-over-year increase in the company's cash flow during the fourth quarter. At its current annual run-rate, NextEra Energy Partners is on track to produce between $505 million and $585 million in cash flow this year, after excluding the funds generated by assets tied to the bankrupt utility PG&E (PCG 1.63%). That's enough money to enable NextEra Energy Partners to increase its dividend by another 12% to 15% this year while maintaining a healthy payout ratio in the mid-70% range. That percentage will be even lower if PG&E emerges from bankruptcy without the court altering its power purchase agreements with NextEra Energy Partners.
Meanwhile, the company continues to believe it has both the financial flexibility (because of its access to private capital) and the opportunity set (thanks to its trio of growth drivers) to keep expanding at a brisk pace over the next several years. Because of that view, CFO Rebecca Kujawa stated on the fourth-quarter call that "we continue to see 12% to 15% growth per year in distributions as being a reasonable range of expectations through at least 2024."
A compelling stock for dividend growth investors
Thanks to a trio of growth drivers, NextEra Energy Partners' cash flow will expand at a brisk rate this year. That will give it all the power it needs to increase its dividend another 12% to 15% while maintaining a conservative payout ratio. That visible upside makes it an ideal stock for dividend investors to consider buying.