A stock's price and dividend yield have an inverse relationship. When a company's shares decline in price, the dividend yield rises. So, with the stock market selling off in recent weeks, it has pushed up most dividend yields.
Several already high-yield dividend stocks now look more attractive following their recent sell-offs. Three that stand out to some of our contributors are those paid by clean energy-focused companies Hannon Armstrong (HASI 0.32%), Clearway Energy (CWEN 2.73%)(CWEN.A +0.00%), and Atlantica Sustainable Infrastructure (AY +0.00%). Here's a look at why they like these companies' clean energy-powered dividends even more now that they're on sale.
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Out of favor, not out of growth
Reuben Gregg Brewer (Hannon Armstrong): Hannon Armstrong is a mortgage real estate investment trust (REIT). The REIT helps to finance clean energy solutions like solar and wind power, among a broad list of other things. Backing its loans are long-term power contracts in what is expected to be a growing sector. Only clean energy stocks ran up sharply in 2020 and have since been coming back down to Earth. Hannon Armstrong, for example, is trading around 40% lower than it was in early 2021.
But the REIT is hardly struggling. For example, it has a multi-billion-dollar pipeline of projects that it could support with loans. And its portfolio is spread across eight different industry niches, so it isn't reliant on just one technology to support portfolio growth. In fact, as investors sour on the sector, Hannon Armstrong might even end up with more customers as equity financing costs rise. That'll affect the REIT, too, but its debt costs have been falling as its scale increases, so there's a notable offset that should allow it to keep making profitable investments.
Meanwhile, the dividend has been increased in each of the last three years. The dividend yield is a relatively generous 3.5% or so, well above the 1.3% you'd get from an S&P 500 index fund. And the distributable earnings per share payout ratio was a healthy 85% in the third quarter. To be fair, this isn't a low-risk investment and rising interest rates could be a headwind. It's not going to be a good fit for everyone. But, with the stock down so much, it is definitely worth a deep dive for ESG-inclined dividend investors.
NYSE: HASI
Key Data Points
Solid growth prospects in clean energy
Neha Chamaria (Clearway Energy): Having shed almost 14% value in the past three months, Clearway Energy stock is now yielding a juicy 4.2%. The company's prospects, meanwhile, appear as strong as ever.
Clearway Energy runs extensive solar and wind projects across the U.S., and is about to sell its thermal business for $1.3 billion as it strives to expand its renewables footprint while raising funds for growth. Right now, Clearway Energy's sponsor has nearly 17 gigawatts under development.
In fact, the company has already outlined plans to invest 50% of the net proceeds from its thermal business sale immediately, and expects to invest the remaining amount in projects that should boost its cash available for distribution and support dividend growth. Based on its plans, Clearway Energy expects to grow its annual dividend by 5% to 8% through "at least" 2026.
That dividend growth, when combined with Clearway Energy's yield north of 4%, makes it an intriguing stock at the current price. With the company set to divest the thermal business any time now and report its fourth-quarter numbers in late February, it's time to pay attention to this stock while it's on sale.
NYSE: CWEN
Key Data Points
The sliding stock price has pushed up its already high yield
Matt DiLallo (Atlantica Sustainable Infrastructure): Atlantica Sustainable Infrastructure has gotten caught up in the recent stock market correction, which hit companies in the technology and clean energy sector the hardest. Shares of the clean energy infrastructure company have fallen about 20% from its most recent peak. That has pushed its dividend yield up to nearly 5.4%.
That sell-off also has Atlantica trading at a much more attractive valuation, given the double-digit rise in its cash flow over the past year. Powering that growth has been the $465 million of investments the company made last year, well above its $300 million annual target. It acquired several new renewable energy assets, including wind farms, solar energy facilities, and a geothermal plant.
The company has more growth ahead. It sees a combination of organic growth, development projects, and third-party acquisitions powering 5% to 8% annual growth in its cash available for distribution per share until at least 2024. Atlantica should have no shortage of growth opportunities, given the need for more sustainable infrastructure like clean power generation, electricity transmission lines, and water desalinization facilities. That steady growth should enable the company to continue increasing its dividend.
That growing high-yielding dividend makes Atlantica an attractive option for investors seeking a sustainable passive income stream.
