Clearway Energy (CWEN -1.20%) (CWEN.A -1.20%) has been a dividend investor's dream stock this year. The renewable energy producer recently boosted its payout for the third time in 2020, bringing its year-to-date increase to 59%. That trend should continue as the company added even more power to its dividend-growth engine during the third quarter.
A solid quarter despite the headwinds
The company's adjusted EBITDA grew by 4% during the third quarter to $312 million while its cash available for distribution (CAFD) dipped by 3.4% to $171 million. Propelling the earnings increase were its Carlsbad and Hawaii Solar Phase I acquisitions, which helped offset lower renewable energy resources and a decline in thermal energy sales that it attributed to the pandemic. Meanwhile, CAFD slipped due to higher interest expenses.
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Despite some headwinds from the pandemic, as well as weaker wind and solar energy resources during the period, Clearway Energy remains on track to hit its full-year CAFD guidance of $310 million. Because of that, and the company's growing investment pipeline, it announced Thursday that it was increasing its dividend by another 1.8% to $0.318 per share each quarter. That was its third boost this year -- the second being by far the largest -- powered by a key customer's emergence from bankruptcy and its continued investments in renewable energy assets.
Clearway Energy also continued making excellent progress on securing new investments and financing to support those initiatives. During the quarter, the company agreed to acquire the Langford Wind Farm in West Texas from its parent, Clearway Energy Group (CEG), for $64.3 million. That asset should generate $8.5 million of annual CAFD over the next five years. The company also agreed to acquire CEG's remaining interest in their distributed generation (i.e., non-utility-scale solar energy projects like rooftop and community solar) partnerships for $43.5 million. This should yield an incremental $5.3 million of annual CAFD over the next five years. With those new deals, the company has now secured $450 million of new investments this year.
Meanwhile, it has continued to raise financing to support this growth. It sold $24 million in equity during the third quarter and obtained $96 million in capital by refinancing some existing debt. That complemented the $243 million in cash that has become available due to PG&E's bankruptcy exit and the sale of some residential solar assets.
A fully charged growth outlook
Those new investments have the company on track to generate $325 million, or $1.61 per share of CAFD next year. That supports the company's plan to grow its dividend toward the high end of its 5% to 8% annual target range in 2021 while staying within its payout ratio target range of 80% to 85%.
Meanwhile, the company continues to take steps toward enhancing the longer-term visibility of its dividend growth plan. It took a big stride toward that goal last month after receiving an offer from CEG to invest in a 1.6 gigawatt (GW) portfolio of renewable energy projects. The portfolio includes six geographically diversified wind and solar energy projects that should reach commercial service over the next two years. The company could potentially invest $230 million to $240 million into it, which would provide a steadily growing cash flow stream as the projects come online.
The company and CEG are also working on an additional portfolio of opportunities backed by 1.1 GW of projects. These renewable energy assets have projected in-service dates in the 2021 to 2023 time frame. Thus, if Clearway and CEG firm up both transactions, it would significantly enhance Clearway's longer-term growth prospects, increasing the visibility of its dividend growth strategy.
A bright future for dividend investors
Clearway Energy has now boosted its dividend yield to 4.3%. However, there's more growth ahead thanks to the company's success in securing new investments and financing during the third quarter. Because of that, it's in an excellent position to generate strong total returns as it continues growing its high-yielding payout at a healthy pace over the next few years. That makes it an ideal choice for dividend investors looking for a renewable-energy-powered income stream.
