Companies that pay above-average dividends don't usually grow very fast. That makes NextEra Energy Partners (NEP 7.68%) an outlier. The clean energy infrastructure company offers an attractive 3.8%-yielding dividend, which is more than double the yield on an S&P 500 index fund. Meanwhile, the payout is growing at a double-digit annual rate, supported by even faster-rising cash flows.
The renewable energy company expects to continue delivering supercharged earnings and dividend growth for the next several years. That makes it a top choice for income and growth investors.
Soaring financial results
NextEra Energy Partners recently reported exceptional second-quarter results. The clean energy infrastructure company generated $500 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up 43% from last year's second quarter. Meanwhile, cash available for distribution (CAFD) surged 37% year-over-year to $207 million. That enabled the company to continue increasing its dividend. Following its latest raise, it has grown the payout by 15% over the past year.
The company benefited from strong results at its legacy assets, which added $51 million to its EBITDA and $26 million to CAFD. A big driver was excellent wind resources in the quarter. Wind resources were 112% of their historical average in the period, a significant improvement from an average wind resource of 93% of its historical average in the year-ago period.
Meanwhile, new additions to the portfolio added $106 million of EBITDA and $41 million of CAFD. The company closed a couple of notable deals in the past year. It acquired a 391 megawatt (MW) wind energy portfolio from Brookfield Renewable (BEPC 2.67%) (BEP 3.04%) for $733 million. That deal enabled Brookfield Renewable to recycle capital into higher returning investment opportunities while providing NextEra Energy Partners with another high-quality portfolio of income-producing wind assets. NextEra Energy Partners also acquired a 50% interest in a more than 2.5 gigawatt (GW) renewable energy portfolio from its sponsor NextEra Energy (NEE 1.23%). That deal continued their relationship, enabling NextEra to recycle capital while allowing the partnership to further enhance its portfolio of income-producing renewable energy assets.
More supercharged growth ahead
NextEra Energy Partners' strong second-quarter showing led the company to boost its full-year forecast. The clean energy company now expects its year-end adjusted EBITDA run rate to be between $1.785 billion and $1.985 billion (up from $1.775 billion-$1.975 billion). Meanwhile, it sees its CAFD year-end run rate in the range of $685 million and $775 million (up from $675 million-$765 million).
The company also extended its dividend growth forecast by one year. It now expects to deliver dividend growth of 12% to 15% annually through at least 2025. That's significantly higher than other income-focused investment vehicles in the renewables sector, most of which expect high single-digit annual dividend growth during that timeframe.
NextEra Energy Partners recently took several steps to enhance its ability to achieve that bold growth forecast. It amended its agreement with NextEra Energy to modify the incentive distribution rights the partnership pays its parent. They flattened the fee to $157 million per year. That will enable the partnership to retain more cash flow to finance acquisitions, including those from NextEra.
The company also completed multiple financings in the quarter to further enhance its financial flexibility. These included doubling its credit facility to $2.5 billion and drawing the $410 million remaining funds from its 2021 convertible equity portfolio financing. The company boasts a strong credit profile, giving it the financial flexibility to continue making acquisitions in the future.
A high-powered dividend growth stock
NextEra Energy Partners has grown its dividend by more than 300% since its initial public offering in 2014. That upward trend should continue, with the company expected to deliver up to 15% annual dividend growth through at least 2025. That makes it an ideal choice for investors seeking a fast-growing passive income stream.
