Clearway Energy (CWEN +0.44%)(CWEN.A +0.31%) stands out in today's low-yield environment. The clean-power producer currently boasts a dividend yield of 4.3%, significantly higher than the 1.3% yield on stocks in the S&P 500.
However, as attractive as the payout is right now, it will be even higher in the future. Clearway currently expects to grow its dividend at a 5% to 8% annual rate, with high-end growth anticipated this year. The potential for higher-end dividend growth is increasingly likely to continue in the future, thanks to another needle-moving acquisition.
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A well-rounded acquisition
Clearway recently unveiled its latest renewable-energy acquisition, which will give it more power to grow its dividend in the future. It's purchasing the remaining 50% interest in a portfolio of solar energy-generating facilities in Utah that it doesn't currently own for $335 million. The portfolio consists of seven utility-scale solar farms in Utah with 530 megawatts (MW) of capacity. They achieved commercial operations in 2016.
The portfolio sells power under long-term power purchase agreements (PPAs) to utility PacifiCorp, a subsidiary of Berkshire Hathaway (BRK.A 1.24%)(BRK.B 1.43%). The PPAs have 15 years remaining and will generate $9 million to $11 million of cash available for distribution (CAFD) annually for Clearway. The company plans to finance this transaction with $210 million to $240 million of project-level debt, giving it an expected equity commitment between $95 million to $125 million. That implies a CAFD yield of around 9%.
Besides boosting its cash flow, the deal has several other benefits. For starters, it increases its exposure to a high-quality customer. The transaction also further diversifies its portfolio geographically. Those are noteworthy aspects, given its previous issues with California-based utility PG&E (PCG 1.18%). Finally, it further demonstrates that Clearway can secure third-party transactions, which reduces its reliance on acquisitions from its parent Clearway Energy Group (CEG).
Increasing its long-term growth prospects
Clearway has been actively expanding its portfolio over the past year. It closed or committed to invest $880 million in new growth investments last year. Meanwhile, it secured additional growth investments in 2021, including purchasing the 264 MW Mt. Storm wind farm in West Virginia from a third party. Those investments include development projects CEG has under way that Clearway will buy once they reach commercial operations over the next couple of years.
These deals had Clearway on track to generate $325 million, or $1.61 per share, of CAFD in 2021 and set the stage for it to produce $395 million, or $1.85 per share of CAFD, once it closes its current slate of deals in stages over the next couple of years. That outlook supports the company's plan to grow its dividend by 5% to 8% per year through 2023. Meanwhile, the Utah solar portfolio acquisition will strengthen that plan, increasing the likelihood of delivering high-end dividend growth in future years.
Meanwhile, Clearway has a lot of additional growth in the pipeline. The company noted in the second quarter that it's evaluating the option to purchase a 50% interest in some community solar projects that could close in the second half of next year. Meanwhile, it's exploring a fleet expansion of its Texas solar business with CEG, which could close in 2023. Finally, it's looking at doing another co-investment deal for up to 1.1 gigawatts of wind, solar, and storage projects CEG has under development. Those projects are on track to reach commercial operations in the 2023-to-2024 timeframe. Clearway's ability to secure those and other third-party transactions would enhance and extend its dividend growth outlook.
A great stock for income investors
Clearway Energy continues to secure cash-flowing renewable-energy assets. That's giving it the power to grow its already high-yielding dividend at an attractive rate. That combination of income with upside makes Clearway one of the best renewable-energy dividend stocks around, as it should generate compelling total returns in the coming years.
