Clearway Energy (CWEN 1.04%) (CWEN.A 1.06%) is one of the many beneficiaries of the country's shift toward cleaner energy sources. The company is finding a steady stream of investment opportunities to grow its recurring cash flow. That's giving it the funds to continue increasing its dividend.
With a vast opportunity set and ample financial flexibility, Clearway should continue delivering steady dividend growth for the next several years. That makes it an excellent option for investors seeking a renewable energy-powered passive income stream.
A solid showing to start the year
Clearway Energy recently reported its first-quarter results. The clean energy producer posted solid numbers. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was up 31.3% to $260 million. The company benefited from recent growth investments and strong production in its utility-scale solar portfolio. That helps offset lower than expected performance in its wind portfolio.
Cash available for distribution (CAFD) was negative $2 million in the period, which was an improvement from a negative $15 million in the year-ago period. It was also within its estimated quarterly sensitivity range for what's historically a seasonably lower quarter.
More progress on the strategic growth plan
The biggest news item was the recent close of the sale of its thermal business. The deal provides Clearway with unprecedented financial flexibility as it received $1.35 billion in net proceeds. The company used the funds to immediately repay temporary corporate borrowings. It plans to eventually redeploy all that capital into new opportunities.
Clearway currently has about $600 million of growth investments lined up. That includes a $22 million investment in a 39 megawatt (MW) solar project with 156 megawatt-hours of storage capacity that's currently under construction in Hawaii. It should start commercial operations in the second half of this year.
Meanwhile, the company is making progress on deploying the remaining $750 million of proceeds. It's currently working with its sponsor, renewable energy developer Clearway Energy Group, on over $300 million of future drop-down transactions. That represents a small portion of that company's enormous and growing development pipeline.
This growing pipeline of investment opportunities has Clearway confident in its long-term outlook. With the sale of its thermal business complete, Clearway now expects to generate $365 million of CAFD this year. That's down from its initial outlook of $395 million, assuming a full year of the thermal business at $40 million in CAFD.
However, the company expects the redeployment of the sale proceeds to drive meaningful CAFD growth in the coming years. The $600 million of investments it has already secured will boost its pro forma annualized CAFD to $385 million as those transactions close. Meanwhile, it believes it can increase its CAFD to more than $440 million by deploying the remaining $750 million in proceeds. It's making progress on that, with the potential $300 million drop-down it's currently exploring having the potential to boost its annualized CAFD by $26 million.
This outlook supports Clearway Energy's view that it can grow its dividend toward the upper end of its 5% to 8% annual range through 2026. The company recently increased its payout by another 2%, pushing the dividend yield to 4.5%.
Powerful passive income growth ahead
Clearway Energy received a huge windfall by selling its thermal business. The company believes it can deploy those proceeds into new investments to offset the lost income and then some. That should give the company the power to deliver high-end dividend growth over the next few years, making it an attractive stock for passive income seekers.