What happened

When NextEra Energy Partners (NEP 7.40%) stock tumbled in end-April, it was a head-scratcher. The company had just reported strong numbers, but it missed the consensus estimates, and that appeared to be the only reason why the stock fell.

I believed NextEra stock was a solid buy after the drop. The big announcement from the company this week, which sent the stock skyrocketing, has only confirmed my views. As of 1 p.m. ET Friday, shares of NextEra Energy Partners had popped 18.3% at their highest point during the week, according to data provided by S&P Global Market Intelligence.

So what

On May 8, NextEra Energy Partners announced a strategic business move to unlock greater value for shareholders.

The company wants to become a renewables pure play. It will therefore sell its natural gas pipeline assets and use the proceeds to fund renewables growth and buy out convertible equity portfolio financings (CEPFs) through 2025. CEPF is a kind of low-cost, short-term debt that's converted into equity on maturity by issuing shares in the company to the debt issuer. Simply put, NextEra's plan is to eliminate such a need to issue fresh equity.

Now, this announcement might concern you if you own NextEra shares for its dividends since 20% of the company's cash flows comes from natural gas. Fear not: The company has a plan for that as well. To offset the loss of cash flows from its natural gas business after it's sold, NextEra will suspend the incentive-distribution rights fees that it pays to its parent NextEra Energy (NEE 2.38%) until 2026. That'll save NextEra Energy Partners enough cash to grow its dividends every year.

For now, NextEra Energy Partners expects to grow its dividend per share annually by at least 12% through 2026.

Now what

Management's rationale behind the strategic shift makes sense. CEO John Ketchum believes that although NextEra Energy Partners has grown exponentially since it was formed in 2014, its current valuation doesn't reflect its growth potential. That's partly because of macroeconomic factors and concerns around the company's need to issue equity in the coming years to buy out its CEPFs.

By eliminating most of its near-term CEPFs and reducing equity needs while capitalizing on the clean energy transition in the U.S., NextEra Energy Partners should, therefore, be able to deliver greater long-term value for shareholders.

NextEra Energy Partners was already one of my favorite dividend stocks, and I'm all the more bullish on this exceptional 5%-yielding dividend stock after this week's update.