Clearway Energy (CWEN -0.36%) (CWEN.A -0.92%) had a monster year in 2020 as its shares have soared more than 60%. Add in its rapidly expanding high-yielding dividend, and the total return is above 65% in 2020. Because of that power surge, shares of Clearway might seem like they're running out of steam.
However, that's not the case at all. The renewable energy generator has plenty of juice to keep running. Here's what the future holds for the dividend-paying clean energy company.
What powered this year's surge?
Clearway Energy had a big year in 2020. The company is on track to generate $310 million of cash available for distribution (CAFD). That's about 22% above 2019's total of $254 million in CAFD. A steady string of new investments powered that surging cash flow. Clearway secured $386 million of accretive growth investments in 2019 and signed more than $450 million in new agreements through the third quarter of 2020.
On top of that, one of the company's largest customers, California utility PG&E (PCG -0.12%), exited bankruptcy in 2020. That freed up cash trapped in the assets under contract with the utility by Clearway's lenders. Clearway was thus able to reset its dividend -- which it slashed in 2019 when PG&E filed for bankruptcy -- and use funds built up over the past year to make acquisitions. Overall, the company increased its dividend three times this year for a total boost of 59%.
Plenty of power to continue growing
As of the end of the third quarter, Clearway's 2020 investments had the company on track to generate $325 million, or $1.61 per share, of CAFD in 2021. With the company's current dividend outlay at $0.318 per share a quarter, or $1.272 annualized, it's on pace to pay out 79% of its CAFD, which is just below its 80% to 85% target range. Because of that, Clearway anticipates increasing its dividend toward the high-end of its 5% to 8% annual target range in 2021.
Clearway has secured several other investments over the past year that will bolster its results in 2022 and beyond. As of the end of the third quarter, Clearway's current investment pipeline had it on track to grow its pro forma CAFD up to an annualized rate of $345 million, or $1.71 per share, when all its deals close and new projects come online. Meanwhile, the company recently enhanced its expansion outlook by agreeing to acquire an additional 35% interest in the Agua Caliente solar energy project for $202 million. The company expects that deal, which should close in the first quarter, to add about $20 million of incremental annualized CAFD before accounting for financing.
In addition to that secured growth, Clearway has another $230 million to $240 million of potential near-term investment opportunities lined up thanks to its relationship with renewable energy project developer Clearway Energy Group. That pipeline includes several renewable energy projects that will come online in the 2021 to 2022 time frame.
Finally, there are significant long-term investment opportunities ahead for Clearway because of Clearway Energy Group. For example, that company has 2.8 gigawatts (GW) of new renewable energy projects under development with targeted commercial in-service dates in 2023. To put that into perspective, Clearway's current renewable energy portfolio consists of about 1.3 GW of solar energy assets and 2.4 GW of wind generation. Meanwhile, many industry forecasters anticipate that renewable energy project developments will accelerate in the coming years thanks to falling costs and increasing climate change concerns. As a result, Clearway Energy should have no shortage of investment opportunities to support its dividend growth strategy.
Lots of growth still ahead
Clearway Energy might not generate total returns approaching 65% again in 2021. However, it still has market-beating potential. With a nearly 4%-yielding dividend that it expects to grow at a 5% to 8% yearly rate as it continues expanding its renewable energy portfolio, Clearway could generate total annual returns in the low teens from here. Because of that, it's one of the most attractive buys in the renewable energy sector these days for investors seeking a steadily rising income stream.