NextEra Energy Partners (NEP 1.00%) has been a dynamic dividend stock during its brief history as a public company. The clean energy company has increased its payout every quarter since its IPO in late 2014, growing its annualized rate by more than 200%.
The company expects to keep growing its dividend -- which currently yields an above-average 3.8% -- at a fast-pace for the next several years. That should give it the power to continue generating market-beating returns, making it a great dividend growth stock to buy this month.
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A rock-solid current yield
NextEra Energy Partners recently reported strong second-quarter results as cash available for distribution soared 45.6% to $166 million. Powering its excellent results was the contributions of two needle-moving acquisitions it completed last year and improvements in its legacy assets thanks to better wind resource conditions.
The company also received some good news on the customer front after California electric utility Pacific Gas & Electric (PCG 1.60%) emerged from bankruptcy. NextEra Energy Partners was able to resume receiving cash distributions from renewable energy projects that sell power to that utility.
With two solid quarters in the books, PG&E's bankruptcy in the rearview mirror, and some organic expansion projects nearing completion, NextEra Energy Partners has increasing confidence in its 2020 outlook. That forecast has the company on track to end the year with an annualized cash flow run rate between $560 million and $640 million. This outlook supports the company's goal of increasing its dividend by 12% to 15% this year while keeping its dividend payout ratio around 70%.
Plenty of power to keep growing
NextEra Energy anticipates that it can maintain that dividend growth pace through at least 2024. It already has enough power to deliver this growth rate until 2022 without completing another acquisition. That's due to the upcoming growth from its current slate of organic expansions, the resumption of cash distributions from projects tied to PG&E, and a higher dividend payout ratio.
Meanwhile, it's increasingly confident in its ability to deliver on its longer-term growth expectations because it has three ways to grow cash flow:
- Acquiring additional assets from its parent, leading clean energy project developer NextEra Energy (NEE 1.01%).
- Buying assets from third-party sellers, such as last year's deal for Meade Pipeline.
- Organically expanding its existing assets, like additional wind repowering projects.
NextEra Energy has an extensive inventory of clean energy assets available for future drop-down transactions. The company's CFO Rebecca Kujawa discussed this opportunity on the second-quarter conference call. She said: "Following another strong quarter of origination, Energy Resources' portfolio of renewable projects now totals more than 27 gigawatts, including the signed backlog of projects that energy resources plans to build in the coming years. When combined with the prospects for future renewables development, NextEra Energy Partners' long-term growth visibility remains as strong as ever." To put that size into perspective, NextEra's growth project backlog alone is bigger than the entire currently operating renewable energy portfolios of all but two companies.
Meanwhile, NextEra Energy Partners has access to the funding needed to support this growth. While the company pays out a large portion of its cash flow via the dividend and doesn't have an investment-grade balance sheet, it did end the second quarter with $650 million in liquidity. It also recently received a $65 million cash distribution from assets tied to PG&E. Meanwhile, it has several other options to fund future acquisitions. According to Kujawa, one of them is the "significant demand from various low-cost private infrastructure capital" providers to finance clean energy deals. NextEra has already tapped this source to complete several creative transactions over the past few years to fund acquisitions from its parent and third-parties. As long as the company's access to capital remains open, it should have no problem financing the deals needed to support its dividend growth.
High-powered dividend growth ahead
NextEra Energy Partners is off to an excellent start in 2020 as new and existing assets delivered strong growth, and PG&E recently emerged from bankruptcy without modifying its power purchase agreements. Now the company has increasing confidence in its long-term dividend growth plan, which it has fully powered through the end of next year. That makes it an excellent stock for dividend investors to buy this month, especially those seeking a fast-rising payout powered by clean energy.
