NextEra Energy Partners (NEP +1.21%) delivered terrific results in 2020. The renewable energy producer grew its cash available for distribution (CAFD) by nearly 40% with several needle-moving acquisitions. That enabled the company to boost its dividend by another 15%. The company expects more high-powered growth in the coming years. It seems increasingly likely to meet that expectation following a series of financing moves it made last year to boost its flexibility.
A transformational year
NextEra Energy Partners generated $1.3 billion of adjusted EBITDA last year and $570 million of CAFD, up 14.4% and 39.7%, respectively. The company benefited from new project additions and higher contributions from its existing assets.
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The biggest move was the acquisition of a 40% interest in a 1 gigawatt (GW) renewable energy portfolio and a 100-megawatt (MW) solar-plus-storage project from its parent NextEra Energy (NEE 1.01%). The company financed these acquisitions with a $1.1 billion convertible equity portfolio financing from private equity giant KKR (KKR +0.19%) and other institutional investors, backed by those assets and four existing ones. The company used $750 million of that financing to close the acquisition during the fourth quarter of last year. It can draw the rest of the funds this year to finance future expansion opportunities.
Another notable accomplishment last year was completing its first three organic expansion projects. NextEra Energy Partners finished two wind repowering projects and added backup compression capacity to support its natural gas pipelines in Texas.
Finally, the company issued $600 million of 0% convertible senior notes due in 2025 and used the proceeds to redeem some of its 4.25% senior notes due in 2024. When combined with the convertible equity portfolio financing, NextEra Energy Partners reduced its interest expenses and significantly increased its liquidity.
A look at what's ahead for NextEra Energy Partners
Thanks to its needle-moving acquisition toward the end of last year, NextEra Energy Partners expects its earnings and cash flow to continue growing in 2021. The company sees adjusted EBITDA rising to an annualized run rate of between $1.44 billion to $1.62 billion and CAFD of $600 million to $680 million by the end of 2021. This forecast implies growth of nearly 18% for adjusted EBITDA and more than 12% for CAFD from 2020's levels. That should enable the company to grow its dividend by another 12% to 15% in 2021.
NextEra Energy Partners expects to maintain that dividend growth rate through at least 2024. Powering that view are its relationship with NextEra Energy and its increasing financial flexibility. NextEra Energy currently has one of the world's largest renewable energy operating portfolios. On top of that, it expects to grow its capacity by one-and-a-half times its current level by 2024. It thus has plenty of assets that it can drop down to its affiliate, which would give it the cash to finance its extensive project backlog.
Meanwhile, NextEra Energy Partners has increased its available liquidity to $2.4 billion thanks to several financing moves it made last year. That gives the company tremendous flexibility to make additional acquisitions from NextEra and third parties. What's worth noting is that the company's financing is coming at decreasing costs due to its enhanced scale and investor demand for renewable-backed funding. The company's latest convertible equity portfolio financing was its lowest cost and longest dated yet. Meanwhile, its 0% coupon convertible notes will save the interest expense compared to the 4.25% notes it replaced. On top of that, the company has been taking advantage of its higher share price to convert debt and preferred securities to equity in moves that are much less dilutive to existing shareholders than the company initially expected.
This dividend stock has a bright future
NextEra Energy Partners is playing a key role in the energy transition. It's buying cash-flowing clean energy assets from developers like NextEra Energy, which is giving them the money to continue building new projects. Meanwhile, those new additions give it the power to grow its dividend at a high rate. Those features make NextEra Energy Partners a great dividend stock to buy and hold for years to come.
