Clearway Energy (CWEN -0.97%) (CWEN.A -1.05%) recently capped a tremendous year by reporting solid fourth-quarter results. That enabled the clean-power producer to deliver full-year financial performance ahead of its guidance, giving it the power to grow its dividend near the upper-end of its target range.
Meanwhile, it has plenty of fuel to continue growing its dividend -- which yields an attractive 4.2% -- at a high-end rate for the next several years. Here's what's powering its ability to increase the payout.
Delivering, and then some
Clearway Energy generated $35 million of cash available for distribution (CAFD) in the fourth quarter, up 16.7% year over year. That pushed its full-year total to $336 million, 13.9% above 2020's level, and higher than the initial forecast for $325 million of CAFD.
Powering the company's strong showing was the contribution from growth investments over the past year and the solid performance of its legacy assets. That enabled the renewable energy producer to increase its dividend by 7% over the past year, achieving its objective of delivering growth toward the upper end of its 5% to 8% target range.
Clearway Energy was also very successful in achieving its strategic-growth objectives. The company invested $820 million to expand its portfolio last year. It completed several investments in the fourth quarter, led by a $335 million deal for the remaining 50% interest in a solar energy portfolio in Utah.
The acquisition, which closed in December, will provide the company with an incremental $30 million of annual CAFD starting this year. Clearway also acquired a 50% interest in two wind energy projects, completed a project to repower a wind farm and boost its output, and purchased a 25% interest in a solar project.
Meanwhile, the company made excellent progress in funding its growth strategy. It issued $1.3 billion in new green bonds. On top of that, Clearway agreed to sell its thermal business for $1.9 billion. It should receive about $1.35 billion in net proceeds when that sale closes later this year.
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The power to continue growing
Given the timing of last year's investments, Clearway expects to generate $395 million of CAFD in 2022. However, that assumes a full year of the thermal business, which should generate $40 million of CAFD. The company currently expects to close that deal in the first half of 2022. It plans to update its guidance when that deal closes.
Clearway expects to more than replace the income currently generated by its thermal business. It already committed to invest $600 million of that capital across several investments. When those deals close, they should help push the company's annualized CAFD up to $385 million.
Meanwhile, it's making progress on a potential drop-down transaction with its sponsor to invest at least $250 million of the remaining proceeds, which should add an incremental $21 million in annual CAFD. Clearway estimates that it can reinvest the leftover cash on future opportunities and generate at least $43 million in additional CAFD each year. That would push its future CAFD potential to more than $440 million annually.
This forecast provides Clearway Energy with lots of visibility into its future growth potential. It instills confidence that the company can continue delivering dividend growth toward the upper end of its 5% to 8% range through 2026.
Clearway should have no shortage of investment opportunities to continue growing in the future. Its sponsor has a 19.1 gigawatt (GW) pipeline of renewable energy and storage projects that it could develop by 2025. That's a sizable opportunity set for Clearway, which currently has 4.7 GW of renewable energy assets and 2.5 GW of highly efficient natural gas power plants. Meanwhile, Clearway has ample financial capacity to continue investing, even after putting all the thermal proceeds to work.
A powerful growth engine
Last year, Clearway Energy delivered on its growth expectations and strategic plan, giving it the fuel to grow its already attractive dividend by another 7%. It sees more growth ahead, powered by its ability to continue finding clean energy investment opportunities.
With several lined up and the financial capacity to fund many more deals, the company should deliver high-end dividend growth over the next several years. That makes it a great stock for investors seeking a renewable-powered passive-income stream.
