Shares of NextEra Energy Partners (NEP +4.92%) clocked their biggest daily gain for the year today, surging 11.6% in early-morning trade. The renewable energy stock, which caught investors on the wrong foot some months ago by slashing its dividend growth target, just reaffirmed its new dividend growth goal backed by strong numbers for its fourth quarter of 2023.
NextEra Energy Partners' dividend growth is on track
NextEra Energy Partners' Q4 revenue of $232 million and earnings of $1.20 per share missed analysts' estimates. The company also reported a sharp drop, or nearly 58%, in its net income for the full year. A deeper dive into the numbers reveals NextEra Energy Partners' biggest chink in the armor, one that also forced the company to slash its dividend growth target last year -- high interest rates. NextEra Energy Partners' interest expense surged last year, eating into its bottom line.
Management, however, remains focused on NextEra Energy Partners' transition plan, which piqued the market's interest today. The company sold part of its natural gas pipeline portfolio last month, the proceeds from which will help it buy out its convertible equity portfolio financings. Rising interest rates and a falling stock price last year made those buyouts and growth investments costly for the company, which is why management cut NextEra Energy Partners' annual dividend growth target through 2026 from 12% to 15% to only 5% to 8%, with an annual target of 6%.
NYSE: NEP
Key Data Points
This morning, the master limited partnership confirmed it can grow its dividend per unit by 5% to 8% with a target annual growth rate of 6% through at least 2026. More importantly, NextEra Energy Partners said it can do so organically, meaning it can grow its dividend by 6% this year without the need for an acquisition. Also, the company believes it will not need to issue new shares until 2027.
NextEra Energy Partners is a solid stock to buy
NextEra Energy Partners stock lost a whopping 56.6% in 2023. Granted, no investor wants to see their dividends from a stock fall. Yet much of the pessimism was already baked into the stock price, which is why I believe NextEra Energy Partners could be a solid recovery stock for 2024.
Management is already working to sell its natural gas assets as planned and is also repowering wind facilities as part of its transition plan to boost NextEra Energy Partners' cash available for distribution (CAFD). This morning, the company said it had identified another 245 megawatts of wind facilities to repower through 2026. NextEra Energy Partners generated $689 million in CAFD in 2023.
With NextEra Energy Partners projecting CAFD of $730 million to $820 million for 2024, value investors found a lot to like in this beaten-down 12.6%-yielding renewable energy stock today.
