NextEra Energy Partners (NEP 2.23%) has been an outstanding income stock over the years. The renewable energy producer has grown its payout every quarter since going public in late 2014.
That upward trend seems poised to continue given the company's solid third-quarter results and high-powered outlook.
A look at NextEra Energy Partners' third-quarter numbers
|
Metric |
Q3 2020 |
Q3 2019 |
Year-Over-Year Change |
|---|---|---|---|
|
Adjusted EBITDA |
$312 million |
$315 million |
-1% |
|
Cash Available for Distribution |
$162 million |
$147 million |
10.2% |
Data source: NextEra Energy Partners.
While NextEra Energy Partners' EBITDA slipped a bit during the third quarter, it's up 16% year to date. Weaker wind resources weighed on earnings during the quarter, as production was 93% of its historical average. That compares to 98% in the first quarter, 100% during the second, and 107% in the year-ago period.
Meanwhile, its cash flow continued its upward trajectory, rising 10% during the quarter and 50% so far in 2020. New projects it acquired last year powered that growth.
One of the highlights this quarter was that NextEra Energy Partners completed its first two organic growth projects. Those investments included repowering a 175-megawatt wind farm in Colorado and finishing a backup compression system to support its gas pipelines in Texas. It completed both on time and on budget despite COVID-19. Meanwhile, it has another 100-megawatt wind repowering project on track to start up by year-end.
Image source: Getty Images.
Full speed ahead
NextEra Energy Partners' solid showing in the third quarter and expansion project progress keep it on track with its outlook. The company expects to end the year producing adjusted EBITDA and CAFD at annualized run rates of between $1.225 billion to $1.4 billion and $560 million to $640 million, respectively. That should support its plan to grow its distribution up to an annualized $2.40-$2.46 per unit by year-end. It took another step toward that goal by increasing its payout to $0.595 per unit during the third quarter (a $2.38 per unit annual run rate), which is 15% above last year's level. The company expects to deliver this incremental growth while maintaining a full-year payout ratio of around 70% of its CAFD.
Because of that conservative payout level, NextEra Energy Partners has room to continue growing its dividend at a 12% to 15% annual pace next year without making any additional acquisitions. Meanwhile, it continues to expect that it can maintain that pace through at least 2024.
Powering that outlook is the vast portfolio of renewable energy assets owned or under development by its parent NextEra Energy (NEE +0.00%) that it could acquire. The utility currently has 15 gigawatts of projects under development, larger than its current operating portfolio.
In addition to drop-down acquisitions, NextEra Energy Partners could sanction additional organic expansion projects or complete more third-party transactions. The company has the financial flexibility to continue making more deals, especially after successfully converting $300 million of convertible debt into equity. It ended up issuing 25% fewer units and saving $50 million in cash compared to selling equity at the time.
A great way to make green by going green
NextEra Energy Partners continues to deliver for dividend investors. With its latest raise, it now yields 3.7%. Meanwhile, it sees plenty of income growth ahead, as it's targeting double-digit increases for the foreseeable future. That fast-growing income stream powered by clean energy makes it an excellent option for dividend investors to consider.
