NextEra Energy Partners (NEP 2.99%) generated excellent results during the second quarter despite the market turmoil caused by COVID-19. Underlying the company's strength were its strong contract profile, solidly performing existing assets, and several recent acquisitions. Because of that, this owner and operator of clean energy projects remains on track to hit management's dividend growth targets.
A look at NextEra Energy Partners' second-quarter earnings
|
Metric |
Q2 2020 |
Q2 2019 |
Change |
|---|---|---|---|
|
Adjusted EBITDA |
$349 million |
$284million |
21.6% |
|
Cash available for distribution (CAFD) |
$166 million |
$114 million |
45.6% |
Data source: NextEra Energy Partners.
The company's earnings and cash flow soared during the quarter due in large part to recent purchases. Last year, it acquired a renewable energy portfolio from its parent, electric utility NextEra Energy (NEE 0.54%), and also bought natural gas pipeline operator Meade Pipeline. Those transactions contributed a combined $51 million in incremental adjusted EBITDA and $36 million of CAFD during Q2.
The company also benefited from strong results at its previously owned assets, which delivered $17 million of additional adjusted EBITDA and $35 million of CAFD. The primary factor in that growth was an improvement in wind resources; in Q2 2020, the level of wind available for energy production at its turbine facilities came in at the historical average, whereas in the year-ago period, wind was only 94% of the norm.
Image source: Getty Images.
A look at what's ahead for NextEra Energy Partners
Earlier this month, one of NextEra Energy Partners' customers, electric utility Pacific Gas & Electric (PCG 0.24%), emerged from Chapter 11 bankruptcy. Because of that, NextEra Energy Partners now has access to the trapped cash from its Desert Sunlight projects that sell power to PG&E. The company received a $65 million distribution in July and will have unrestricted access to future cash flows generated by those assets.
The company also remains on track to complete 275 megawatts of wind repowering projects and some natural gas pipeline expansions in Texas. The company expects those to enter service later this year, which will supply it with incremental cash flow.
Based on all those factors, NextEra Energy Partners is increasingly confident in its near-term dividend growth plan. The company estimates that it will have the financial flexibility to increase its dividend by 12% to 15% per year until 2022 without additional acquisitions. Meanwhile, it believes it can maintain that rate through 2024 by completing more transactions, which could include purchasing renewable energy assets and natural gas pipelines from NextEra Energy.
The company is also well-positioned to make more acquisitions. It ended the second quarter with about $650 million of liquidity (cash and available borrowing capacity). That number will grow thanks to the cash distributions from Desert Sunlight and the fact it's currently retaining about 30% of its CAFD after paying its dividend. Meanwhile, it should have no shortage of acquisition opportunities from NextEra Energy, which recently reported that its renewable expansion project backlog is bigger than the entire operating wind and solar portfolios of all but two other companies.
A great stock for dividend growth investors
NextEra Energy Partners delivered another strong quarter thanks to a combination of last year's acquisitions and excellent performance at its older assets. Factor in its soon-to-be-completed expansion project and the boost it will get from PG&E exiting bankruptcy, and it's clear that this company should have all the ingredients it needs to make good on its dividend growth plans until at least 2022. Because of that, it's an excellent stock for investors who want a fast-growing income stream powered by clean energy.
