NextEra Energy Partners (NEP +1.59%) recently reported solid second-quarter results. While the renewable-energy company faced some headwinds during the quarter from weaker wind and solar resources, it continued making progress on its strategic growth plan. That allowed it to deliver another dividend increase, pushing the 3.5%-yielding payout up by 15% over the past year.
The company has plenty of power to continue growing its dividend at an accelerated pace in the coming years. Here's a closer look at its second-quarter results and what's ahead for the renewable-energy company.
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A closer look at the quarter
NextEra Energy Partners' adjusted EBITDA rose by $1 million to $350 million in the second quarter as weaker wind and solar resources offset most of the benefit of new investments. Meanwhile, cash available for distribution (CAFD) declined from $166 million in the year-ago period to $151 million in 2021's second quarter, due primarily to the lower resources at its existing projects. Despite those headwinds, adjusted EBITDA is up 9% so far in 2021, while CAFD has increased by 11%.
Wind resources across the company's operations were at 93% of their historical average during the period, compared to being right at the historical average in the year-ago quarter. That had a notable effect on the company's results. Overall, weaker wind and solar resources impacted its second-quarter adjusted EBITDA by $22 million, which it narrowed to a $9 million decline through operational improvements. The company pointed out that a 1% change in the wind production index equates to about a $4 million to $6 million impact on adjusted EBITDA for the balance of the year.
A look at what's ahead for NextEra Energy Partners
NextEra Energy Partners' solid showing in the second quarter kept it on track with its full-year forecast. The renewable-energy company continues to expect its year-end adjusted EBITDA run rate will be in the upper end of its guidance range of $1.44 billion to $1.62 billion. Furthermore, the company also anticipates that CAFD will be in the upper end of its $600 million to $680 million guidance range.
That should enable the company to generate enough cash to support a fourth-quarter dividend in the range of a $2.76 to $2.82 per unit annualized rate. That's 12% to 15% above its annual rate in the fourth quarter of 2020. NextEra Energy Partners believes it can grow its payout at that same pace through at least 2024.
One factor increasing the company's confidence in achieving its growth plan is its latest deal, which it unveiled along with its second-quarter results. It's investing $563 million to acquire a 590-megawatt (MW) portfolio of wind and solar energy assets from its parent, utility NextEra Energy (NEE +0.31%). The assets include 510 MW of utility-scale wind and solar projects and 80 MW of distributed generation (DG) solar projects. That marks the company's first DG investment, which are energy production assets installed near end-users like rooftop solar. This investment will generate an average of $90 million to $100 million of annualized adjusted EBITDA and $41 million to $49 million of CAFD over the next five years.
NextEra Energy Partners completed several financing transactions to help fund that deal while giving it the flexibility to make future investments. In June, it raised $500 million via a new 0% coupon convertible note. It also drew the remaining funds on its 2020 convertible portfolio equity financing, which it upsized by $150 million during the quarter due to strong investor demand. Finally, it issued new common units, raising another $50 million. That enabled it to maintain an excellent liquidity profile of $2.2 billion, which it will use to fund this deal and future transactions.
A great stock for income investors
NextEra Energy Partners reported solid results in the second quarter despite some intermittent wind and solar resources in the period. That kept the company on track to achieve the upper end of its year-end earnings and cash flow run-rate target. Meanwhile, its ability to secure additional investments and funding gives it the power to continue growing its dividend. With growth not expected to slow anytime soon, NextEra Energy Partners remains a top-tier renewable-energy dividend stock.
