This year has been an awful one for dividend investors due to the economic fallout from the COVID-19 pandemic. More than 175 public companies have cut their payouts by at least 50%, with several suspending them entirely. Those reductions have decimated the income streams of many investors.
However, while many companies are reducing their payouts during these tough times, others are immune to the current challenging environment. One of these is clean energy producer Clearway Energy (CWEN -1.06%) (CWEN.A), which has already provided its investors one raise earlier this year and could give them an even bigger one later this summer. Because of that, it tops my list of stocks for yield-seekers to buy this month.
Immune to COVID-19
While electricity usage has fallen this year as a result of the COVID-19 outbreak, this issue hasn't impacted Clearway. That's because its electric utility customers are contractually obligated to purchase the power produced by its natural gas and renewable energy facilities. That enabled it to generate strong results during the first quarter. It also has it well on track to deliver on its full-year forecast.
Overall, Clearway expects to produce $310 million, or $1.56 per share, of cash available for dividends this year, which would be 22% above last year's level. That forecast puts its roughly 4%-yielding payout on a very sustainable level. Given its current rate of $0.21 per share each quarter -- a 5% increase from last year -- Clearway is on track to pay out about 54% of its cash flow, which is conservative for a renewable yieldco.
Dividend growth catalysts galore
One reason Clearway pays out such a low percentage of its cash flow is due to some restrictions on the funds generated by assets contracted to California utility PG&E (PCG 0.97%). That company filed for Chapter 11 bankruptcy early last year following a string of deadly wildfires in the state. This event forced Clearway to reduce its dividend by 40% because its lenders restricted its access to the cash tied to PG&E until it settled its bankruptcy claims.
However, PG&E appears close to exiting bankruptcy. Once that happens, Clearway's lenders will release the restrictions on the cash tied to its contracts with PG&E. That will enable Clearway to normalize its dividend. While it probably won't bring the payout back to its prior peak, it will likely provide investors with a sizable increase.
Meanwhile, Clearway expects to use the accumulated cash it has retained to invest in several growth opportunities provided by its sponsor Clearway Energy Group (CEG). The company recently signed deals to acquire three wind projects from CEG for $241 million. It already closed one of those deals, a $70 million purchase of the remaining interest in a wind repowering partnership, which it financed by selling a residential solar portfolio for $75 million. Once it closes its remaining transactions by early next year, Clearway expects its annualized cash flow run rate to rise to $340 million, or $1.70 per share. That's about 10% above its 2020 guidance, giving it even more stable cash flow to grow its dividend in the future.
Meanwhile, Clearway has the financial flexibility to continue growing its portfolio thanks to the cash it retains after paying the dividend and its solid balance sheet. It has no shortage of opportunities due to its relationship with CEG. That company had 1.6 gigawatts of renewable energy projects under development that should start service by 2023. Clearway already has the right of first offer on several of those opportunities, providing it with lots of visibility into future growth.
A big payout now with an even bigger one coming
Clearway Energy's dividend stands out these days. Instead of cutting its high-yielding payout, the company will likely boost it again later this year once PG&E reemerges from bankruptcy. Meanwhile, with several acquisitions on track to close later this year, and more opportunities in the pipeline, Clearway should have plenty of power to grow its dividend in the future. That combination of strength amid the current storm and visible catalysts for the future is why Clearway tops my list of stocks for yield-seekers to buy this month.