Investing in dividend-paying stocks can be a great way to build a supplemental income stream. Many dividend stocks pay attractive dividends that steadily increase.
NextEra Energy Partners (NEP +0.29%) stands out for its ability to pay dividends. The renewable energy dividend stock offers a high-yielding payout and high-powered growth prospects.
NYSE: NEP
Key Data Points
A powerful dividend
NextEra Energy Partners currently offers a gigantic 7% dividend yield. That's multiple times higher than the average dividend stock. For example, the dividend yield on the S&P 500 is currently around 1.6%. To put that payout into perspective, every $1,000 invested into NextEra Energy Partners would produce about $70 of annual dividend income compared to roughly $16 in an S&P 500 index fund.
That payout is on an increasingly sustainable foundation. NextEra Energy Partners owns a large-scale portfolio of clean energy infrastructure assets secured by long-term contracts. It sells its renewable energy to utilities and large corporate buyers under long-term power purchase agreements that supply it with predictable cash flow. The company also has some natural gas pipeline assets that generate steady cash flow backed by long-term contracts.
The company expects its dividend payout ratio to be in the mid-80% range this year, assuming the successful sale of one of its natural gas pipeline businesses. That gives it a decent cushion while allowing it to retain some cash to fund new investments.
Meanwhile, NextEra Energy Partners has a solid balance sheet. While it doesn't have investment-grade credit, it has significant liquidity and multiple sources of financing.
NextEra Energy will also recycle capital to enhance its portfolio and balance sheet flexibility. It currently plans to sell its natural gas pipeline assets over the next couple of years. It intends to use the proceeds to redeem some financing and invest in new income-generating renewable energy assets.
A powerful growth plan
NextEra Energy Partners has a phenomenal track record of increasing its dividend. The company has grown its payout by about 355% since its initial public offering in 2014, including 12% over the past year.
It sees more high-powered growth ahead. The company plans to increase its dividend by 12% to 15% annually through at least 2026. NextEra Energy Partners has several growth catalysts to power that plan, including:
- Drop-down transactions: NextEra Energy Partners has steadily acquired income-producing renewable energy assets from its parent, NextEra Energy. The partnership most recently acquired a 690-megawatt (MW) portfolio of wind and solar projects from NextEra Energy for $708 million. NextEra Energy has an extensive (and growing) portfolio of renewable energy assets it could drop down to its affiliate in the future.
- Third-party acquisitions: NextEra Energy Partners will opportunistically acquire renewable energy assets from unrelated third parties. For example, in 2021, the company purchased a 391-MW portfolio of operating wind energy assets from Brookfield Renewable for $733 million.
- Organic expansions: NextEra Energy Partners will invest in projects to enhance its existing assets. It's currently evaluating 1.3 gigawatts of wind repowering projects to replace existing turbines with newer, more powerful ones. It's also exploring opportunities to add battery storage to more of its existing assets.
Future investments will increase the company's cash flow, giving it the power to grow its dividend. NextEra Energy Partners has a variety of funding sources to finance future investments, including capital recycling, post-dividend retained cash, debt, and equity. Its current plan to sell its natural gas pipeline assets should support its dividend growth strategy through the end of next year without needing to sell any additional equity.
A massive passive income producer
NextEra Energy Partners pays a supercharged dividend. The renewable energy company offers a high-yielding payout that it expects to continue increasing at a double-digit rate. Those features make it an outstanding dividend stock to buy for those seeking to put a charge in their income.
