Atlantica Sustainable Infrastructure (AY 2.51%) has spent the past several years steadily building a diversified portfolio of sustainable infrastructure assets. The company has invested in cleaner energy sources like renewable energy and natural gas power generating facilities, electricity transmission lines, and water desalination plants. This focus on investing in sustainable infrastructure has paid dividends for Atlantica's shareholders over the years. It has steadily increased its payout, boosting its yield to its current level of around 4.6%.
The company believes its strategy will power sustainable growth over the next several years. That makes it look like an attractive stock for income-seeking investors.
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A solid end to 2020
Atlantica Sustainable Infrastructure is coming off a productive year. The company generated $200.7 million in cash available for distribution in 2020, up 5.5% from 2019's level. That gave it the funds to increase its dividend by 6% from 2019's level and invest in several new investments. It also generated an incremental $216 million of cash through additional debt refinancings last year.
Those moves provided Atlantica with the financial flexibility to invest more than $300 million into expanding its sustainable infrastructure portfolio last year. The highlight was acquiring a tax equity investor's interest in the Solana solar power project in the U.S. for $290 million. The company also formed a renewable energy joint venture (JV) in Chile, which made its first acquisition of a 55-megawatt (MW) solar energy project. It invested $4 million into that JV and $8 million across several other smaller opportunities.
Off to an excellent start to 2021
Atlantica has continued securing new investment opportunities in recent months. The biggest is a deal to acquire Coso Geothermal Power Holdings, which is a 135 MW geothermal power plant in the United States. The company expects to invest $170 million into the transaction, which should close during the first half of this year. The company also secured several other smaller investment opportunities, including:
- The acquisition of a district heating business in Calgary for $20 million.
- A $20 million investment in its JV in Chile to purchase a 40 MW solar energy project.
- A $20 million investment to acquire a 20 MW solar plant in Colombia from its strategic partner Algonquin Power & Utilities (AQN 0.49%).
- $50 million of growth spending across its existing assets.
Overall, the company has secured $280 million of additional investment opportunities that should close by the middle of this year.
When added to its existing assets and last year's acquisitions, Atlantica estimates that it should have the power to generate between $220 million to $240 million of CAFD this year, or $1.99 to $2.17 on a per-share basis. That's a nearly 15% increase at the midpoint from last year's level. The middle of that forecast implies an 80% payout ratio on its current annualized dividend of $1.66 per share.
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Powerful growth still ahead
Atlantica believes it can continue growing its CAFD per share at a healthy rate beyond 2021, powered by a significant pipeline of identified investment opportunities. It's targeting to invest about $300 million per year, which should support 5% to 8% annual CAFD growth per share through at least 2024.
Three factors power that growth outlook:
- Organic growth: Atlantica believes it can optimize its existing assets, benefit from inflation escalators on existing contracts to increase rates, and expand some of its electricity transmission lines. It also expects opportunities to expand or repower some of its existing renewable energy assets.
- Development of new assets: The company plans to invest and co-invest in new projects developed internally and with some of its strategic partners like Algonquin.
- Third-party acquisitions: Atlantica believes it can continue acquiring sustainable infrastructure assets from third parties that need capital to develop new projects.
Given the projected growth of the renewable energy market alone over the next few decades, it seems reasonable to believe Atlantica will be able to continue securing attractive investment opportunities. It currently has a 1-gigawatt pipeline of early stage renewable energy development projects and several projects to expand its existing assets, giving it increased visibility into its future growth potential. Meanwhile, it currently has $750.2 million of corporate liquidity and no meaningful debt maturities until 2025. It has lots of flexibility to pursue investment opportunities as they arise.
This dividend has a bright future
Atlantica Sustainable Infrastructure's success in securing new investment opportunities has enabled it to steadily increase its dividend in recent years. That upward trend appears likely to continue given the growth it has already lined up for this year and what it sees ahead. Add that sustainable growth to its attractive current yield, and Atlantica looks like an excellent dividend stock for the long haul.
