Clearway Energy (NYSE:CWEN)(NYSE:CWEN.A) has been a dividend growth juggernaut this year. The renewable energy producer increased its payout three times, boosting it by an eye-popping 59% overall. That surging payout has helped push its yield above 4.3%. 

That upward trend in the dividend seems likely to continue, given Clearway's increasingly visible growth pipeline. Because of that, income investors won't want to miss what's ahead for this high-yielding stock.

A field of solar panels with wind turbines in the background at dawn.

Image source: Getty Images.

Enhancing an already fully powered growth plan

Clearway Energy has had an active year. The company had secured $450 million of new growth investments through the end of the third quarter. Overall, it expects these to add an incremental $50.1 million of average annual cash available for distribution (CAFD). After adjusting for financing and timing, the company anticipates that its CAFD will grow from $310 million, or $1.54 per share, in 2020 to $325 million, or $1.61 per share, in 2021. Eventually, these additions will boost its CAFD to $345 million ($1.71 per share).

That outlook supports the company's belief that it can grow its dividend at a 5% to 8% annual rate while maintaining a payout ratio between 80% and 85% of its CAFD. Given its currently lower payout ratio and the growth it sees ahead for 2021, the company expects to deliver a dividend increase toward the high end of that range next year.

That high-end outlook seems even more likely after the company recently secured another investment opportunity. It agreed to acquire a 35% interest in the Agua Caliente solar project, which will boost its share of that facility to 51%. It's paying $202 million for that additional stake, which should supply it with an incremental $20 million of average annual CAFD over the next five years before factoring in the impact of financing. It expects the deal to close during the first quarter of 2021, implying it will provide an incremental boost to its 2021 results.   

Plenty more power in the pipeline

What's noteworthy about the Agua Caliente deal is that it's an addition to a string of recently disclosed investment opportunities. For example, last quarter, Clearway unveiled that it received an offer from its parent, Clearway Energy Group, to co-invest in a portfolio of six new renewable energy projects plus acquire an additional stake in an existing wind project. The company could invest $230 million to $240 million into those opportunities. The projects have a staggered completion timeline through 2022. As such, they'd provide some incremental income to support next year's dividend increase and help it get a jump-start on 2022. 

In addition, the company is working on another portfolio of investment opportunities with its parent. This option would include projects scheduled to come on line in the 2021 to 2023 time frame. If Clearway secures this opportunity, it will extend its dividend growth visibility farther into the future.

There could be similar opportunities in the future, given the accelerating development of renewable energy. For example, Clearway Energy Group has 2.8 gigawatts of projects under development that should come on line in 2023. While it has already offered Clearway Energy the opportunity to partner on 382 megawatts of those projects, that's a fraction of that total, implying the potential for more investment. In addition, the company can continue to complete supplemental deals like the recent one for a larger stake in Agua Caliente to boost its growth profile.

A great way to generate income

Clearway Energy has become a top-notch dividend growth stock this year. It has secured a steady stream of new investments, giving investors increased confidence in its dividend growth plan. Because of that, it seems likely that the company will deliver high-end dividend growth next year, with an increasing probability of achieving its forecast for the next few years. That makes it an excellent dividend stock to buy, especially for investors seeking a renewable-powered income stream.


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