1 Unstoppable Dividend Growth Stock I Plan to Buy in September

I'm working toward a goal of growing my passive income sources, so they eventually outpace my expenses. While I have a long way to go, I'm making progress each month by regularly investing money into income-producing assets. I'm focusing on stocks that can steadily grow the income paid to investors, positioning me to achieve my financial goal more rapidly.

This September, one dividend stock near the top of my buy list is Clearway Energy (CWEN 2.30%) (CWEN.A 2.14%). I want to add to my position in this dividend-paying renewable energy company so I can produce even more passive income in the future.

An attractive income stream now

Clearway Energy offers an attractive dividend yield, currently around 3.8%. That's more than double the income yield on an S&P 500 index fund. That means it can supply me with more income for every dollar I invest. For example, every $100 invested in Clearway can generate $3.80 in annual income compared to $1.50 in the S&P 500.

While higher-yielding dividend stocks often have a higher risk that they'll reduce their payouts during a downturn, that's not a risk for Clearway Energy. It generates steady cash flow backed by long-term contracts that sell the power it produces at a fixed rate. Clearway generated $174 million in cash available for distribution (CAFD) during the first half of this year. Meanwhile, it paid out $141 million in dividends. It sees full-year CAFD coming in at about $365 million, more than enough to cover its expected dividend outlay, enabling the company to retain some cash for expansion.

Clearway Energy also has a cash-rich balance sheet following the sale of its thermal assets earlier this year. It received a net $1.46 billion in proceeds from that sale, which it expects to reinvest in acquiring additional income-producing renewable energy assets.

Even more income in the future

Clearway Energy has already lined up deals for 55% of that capital. For example, it recently agreed to acquire a portfolio of wind energy projects from Capistrano Wind Partners. It expects to invest between $110 million and $130 million into the deal, which should generate $12 million to $14 million of annual CAFD. These deals have the company on track to grow its CAFD to $400 million.

The company is also working on another potential dropdown transaction with its sponsor Clearway Energy Group (CEG), a renewable energy development company. CEG has an enormous backlog of projects under development that Clearway Energy could acquire in the future. It's hoping to secure another $300 million dropdown transaction over the next year.

That would still leave it with over $300 million to deploy. It shouldn't have a problem finding other deals, given the enormous investment required to decarbonize the U.S. power grid. One potential source is the recent strategic partnership that will see energy giant TotalEnergies (TTE 0.52%) take a stake in CEG. As part of the deal, Clearway Energy has the right of first offer on TotalEnergies' sizable onshore renewable energy portfolio. That provides the company with even more internal acquisition opportunities, complementing its ability to secure third-party transactions like Capistrano.

Clearway believes its ability to put the windfall from the thermal sale to work in acquiring new renewable energy assets will grow its CAFD to more than $440 million. That would give the company the power to grow dividends per share in the upper end of its target range of 5% to 8% annually through 2026.

Over the longer term, it should have no shortage of investment opportunities. The U.S. needs to invest an estimated $4 trillion to switch power sources from fossil fuels to renewable energy over the next three decades. Clearway can help in this pursuit by providing capital to developers like CEG and TotalEnergies by acquiring the income-producing projects they complete, enabling them to recycle that capital into new investments. That should allow the company to continue growing its high-yielding dividend.

A powerful dividend growth stock

Clearway Energy pays an attractive dividend that it expects to grow at a healthy clip for the next several years. It's an ideal dividend stock for me since it should help me achieve my passive income goals sooner. That's why I plan to add to my position this month, and will likely continue doing so in the years ahead as I reinvest my dividends into more income-producing assets.