Clearway Energy (CWEN -1.11%) (CWEN.A -0.80%) has been far from a dream dividend stock in recent years. The clean-energy company started well, growing its payout every quarter from its IPO in late 2013 through the end of 2018. However, that streak ended abruptly when one of Clearway's largest customers -- California electric utility Pacific Gas and Electric Company (PG&E) (PCG 0.81%) -- filed for bankruptcy in early 2019. That forced Clearway to slash its payout by 40% because its creditors restricted its access to the funds paid by PG&E until that company completed its restructuring. 

That reset payout, which Clearway boosted by 5% earlier this year, is on a much firmer foundation because the company has been reducing its reliance on PG&E by making a steady stream of acquisitions. Add that factor to PG&E's recent reemergence from bankruptcy, and Clearway appears poised to become a dividend investor's dream stock in the coming years. 

A cheering man holding a calculator with the word 'dividends' on the screen.

Image source: Getty Images.

A sturdier foundation

Clearway Energy owns a diversified portfolio of electricity-generating assets, powered by both renewables and natural gas. It also operates one of the country's largest district energy and combined heat and power (CHP) portfolios. These assets produce steady cash flow backed by long-term, fixed-rate contracts with end users like utilities and commercial customers.

The company currently expects to generate about $310 million, or $1.56 per share, of cash this year, 22% above last year's total thanks to recent acquisitions. At the current dividend rate of $0.21 per share each quarter, that puts Clearway's payout ratio at a conservative 54%, enabling it to retain lots of cash to power future growth. The company also has a solid balance sheet, with leverage metrics within its target range.

Meanwhile, Clearway expects its annualized cash flow run rate to rise to $340 million, or $1.70 per share -- a 9% increase -- once it completes the acquisition of three wind power projects early next year. Those assets will further diversify the company's cash flow away from PG&E, putting its payout on an even firmer foundation.

The power to keep growing the dividend

The combination of those wind acquisitions and PG&E's recent reemergence from bankruptcy -- which will lift the lender restrictions on the associated cash and future cash flow -- should enable Clearway to significantly boost its dividend in the coming year. The company already promised to normalize its dividend once PG&E exited bankruptcy, making a sizable near-term boost likely. Meanwhile, its three wind deals, which should all close by early next year, will give it more power to potentially increase the payout again early next year.

Beyond this near-term visibility, the company should have plenty of fuel to continue growing its payout in future years thanks to its strategic relationships with a renewable energy project developer and a private equity fund. Clearway currently holds the right of first offer to acquire:

  • Up to $26 million of distributed and community solar partnerships
  • A 75 megawatt (MW) utility-scale solar project in Hawaii that starts up next year
  • A 150 MW wind repowering project in Texas that should come online later this year
  • A 110 MW utility wind farm in West Virginia that should commence operations next year
  • A 100 MW utility-scale solar project in Mississippi that's on track to begin producing power in 2022

On top of that, its sponsor has an extensive portfolio of renewable energy projects under construction and in advanced and intermediate stages of development. This pipeline provides Clearway with another visible growth opportunity. As long as Clearway can access funding, it should have no problem continuing to expand its portfolio, giving it more power to grow the dividend.

Lots of dividend growth ahead

Clearway Energy appears poised to deliver steady dividend growth in the coming years, powered by its large pipeline of drop-down acquisition opportunities and healthy financial profile. Add that growth to its above-average yield, and Clearway looks like it could be a dream stock for income investors.