After falling off the cliff in recent weeks, shares of NextEra Energy Partners (NEP -0.89%) rebounded dramatically this week and were trading 25% higher through 1 p.m. ET Friday after hitting a weekly high of 26.9%, according to data provided by S&P Global Market Intelligence. The renewable-energy stock lifted investors' hopes by delivering strong numbers for its third quarter and revealing how it plans to achieve its recently updated annual dividend-growth goal through 2026.
Organic growth should support NextEra Energy Partners' 6% dividend growth goal
NextEra Energy Partners stunned the markets last month when it said it expects to grow its annual dividend per share through 2026 by only 5% to 8% with a target of 6%, down from its previous guidance of 12% to 15% growth. Higher interest rates, in particular, have made funding costly for the company, compelling it to reduce its dividend-growth goal. However, NextEra Energy Partners emphasized how it doesn't expect to issue fresh equity until 2027 to meet its revised growth plans. It also revealed plans to focus on organic growth, specifically repowering its wind assets to boost cash available for distribution (CAFD) instead of relying solely on acquisitions through drop-down transactions from its parent company, NextEra Energy (NEE -1.36%).
The dividend-growth cut, of course, sent NextEra Energy Partners stock crashing, and it had lost a whopping 40% since Sept. 27 through the end of last week. Its dividend yield shot up to double digits.
This week though, NextEra Energy Partners gave the markets some respite when it reported 21% year-over-year growth in its Q3 revenue and nearly 33% growth in CAFD. More importantly, the company increased its Q3 dividend per share by 6% and said its target of 6% dividend growth per year looks reasonable through at least 2026.
NextEra Energy Partners also announced plans to repower 740 megawatts of wind projects through 2026 and said it will continue to look for repowering opportunities within its 8-gigawatt wind portfolio. The company also said it is on track to sell its natural gas pipeline assets in the near future, the proceeds from which should help it fund growth.
Thanks to a strong Q3 and management's intention to sustain its revised dividend-growth goal, NextEra Energy Partners stock even attracted an analyst-rating upgrade after facing a series of downgrades in recent weeks. CIBC analyst Mark Jarvi raised the renewable-energy stock's price target to $33 a share from $31 per share.
Is the worst over for NextEra Energy Partners stock?
At its earnings conference call held this week, NextEra Energy highlighted its subsidiary's growth plans and urged investors not to "lose sight" of the value of NextEra Energy Partners' portfolio. It is the world's seventh-largest producer of electricity from wind and solar. NextEra Energy also said it wants its subsidiary to succeed and dismissed rumors of any intention of buying it out.
Its parent's backing remains one of NextEra Energy Partners' biggest strengths. Also, a 6% annual-dividend growth isn't nearly as bad as the market is making it out to be. Given this week's updates, NextEra Energy Partners stock looks like a solid buy for the long term.
