Please ensure Javascript is enabled for purposes of website accessibility

Why I Plan to Pour Another $250 Into This High-Yielding Renewable Energy Stock in April

By Matthew DiLallo - Apr 5, 2020 at 3:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One Fool is taking advantage of the market volatility to increase a position in this clean energy company.

One of my investing goals this year has been to build out a basket of renewable energy stocks to benefit from the growth I see ahead in the sector. Among the most recent entrants to that mini-portfolio was renewable energy yieldco Clearway Energy (CWEN 1.77%) (CWEN.A). I purchased 15 shares in late February, spending about $330.

Given all the volatility in the stock market, that initial position has lost value. However, instead of lamenting the loss, I'm planning to take advantage of the decline by pouring another $250 into that position this April. Here's why I'm adding so soon after my initial purchase.

Solar panels with the sun setting in the background.

Image source: Getty Images.

A cheaper valuation and higher yield

Shares of Clearway Energy have fallen about 15% over the past month, due entirely to volatility driven by COVID-19 outbreak. That sell-off has pushed the company's dividend yield up to 4.7%, which is higher than the 3.8% payout I locked in toward the end of February.

That dividend should be on solid ground, assuming the U.S. economy doesn't go into a prolonged slump as a result of the COVID-19 outbreak. That's because Clearway is well-protected from a short-term downturn due to the structure of its power purchase agreements, which guarantees it a fixed rate for the power it produces. In the company's view, those contracts should supply it with $310 million of cash available for distribution this year, which is money it could pay out in dividends. That's 22% above last year's level thanks to recent acquisitions and debt refinancing. This forecast implies a 50% dividend payout ratio at last year's rate, which gave the company the confidence to increase its dividend by 5% this year.  

Lots of upside catalysts

While the COVID-19 outbreak will probably affect power demand over the coming months, that shouldn't affect Clearway Energy since utilities would probably reduce the production of higher cost electricity generated by fossil fuels. Clearway appears as if it has lots of upside due to the clear catalysts it has on the horizon.

For starters, the company is a major power supplier to bankrupt California utility PG&E (PCG -1.70%). That relationship has impacted Clearway in the past year because of lender restrictions on the cash generated from its power purchase agreements by assets tied to PG&E. However, that company has recently reached a deal with the state of California to emerge from bankruptcy. This agreement won't alter its power purchase agreements with third-party electricity suppliers like Clearway. The company will not only continue collecting the same rate on those contracts but will also be free to use the money it earned while PG&E was in bankruptcy. That could enable it to boost its dividend even further this year. 

Clearway also has several other potential growth catalysts lined up that could bolster its cash flow this year. Its parent, Clearway Energy Group, recently offered it the opportunity to acquire and invest in a portfolio of projects. These options include buying the Rattlesnake Wind Project, the rest of its parent's interests in Repowering 1.0, and a new partnership to repower the Pinnacle Wind Project. If it moves forward with these investments, they could help power faster growth this year while setting it up to keep expanding its cash flow in 2021.

Clearway has lots of growth potential beyond those near-term opportunities. That's due to its focus on clean energy and relationship with both Clearway Energy Group, which develops renewable energy projects, and Global Infrastructure Partners, which is a leading infrastructure fund manager. Those relationships have already provided Clearway with several investment opportunities and should continue presenting it with a steady pipeline of growth options in the years to come.

It's time to add

Thanks to $0 stock trading commissions these days, investors like me can start with a small investment in an intriguing company and slowly add to it over time. That's what I'm doing with Clearway Energy this year as I'm taking advantage of March's sell-off to boost my initial position and lock in an even higher yield. It likely won't be my last purchase since Clearway appears to have lots of upside ahead as it keeps building out a portfolio of cash-generating clean energy assets so that it can grow its dividend.

Matthew DiLallo owns shares of Clearway Energy, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Clearway Energy, Inc. Stock Quote
Clearway Energy, Inc.
$40.88 (1.77%) $0.71
Clearway Energy, Inc. Stock Quote
Clearway Energy, Inc.
PG&E Corporation Stock Quote
PG&E Corporation
$12.18 (-1.70%) $0.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.