NextEra Energy Partners (NEP -0.89%) currently offers a monster dividend yield (nearly 12%). Usually, a yield that high suggests a company is at a high risk of reducing its payout. While that's certainly still a possibility, the clean energy infrastructure company continues to push its big-time payout even higher.

Here's a look at what's powering the company's ability to increase its dividend and whether that can continue.

A solid year despite the turbulence

NextEra Energy Partners recently closed the books on a challenging year. The renewable energy company lost more than half its value in 2023, weighed down by balance sheet and growth concerns stemming from surging interest rates.

However, while the company battled balance sheet problems, its underlying business performed well. It delivered a robust 13.6% year-over-year increase in its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to nearly $1.9 billion. Meanwhile, its cash available for distribution (CAFD) rose 8.7% to $689 million. NextEra Energy Partners benefited from the increased income earned by new projects added to the portfolio and a reduction in management fees from its parent, NextEra Energy. That helped more than offset weaker performance from its existing assets.

That earnings and cash flow growth enabled the renewable energy producer to continue increasing its dividend. It recently raised its quarterly payout rate to $0.88 per unit. That's 1.4% above last quarter's payment and 6% above the year-ago level.

Making progress on shoring up its finances

Surging interest rates forced NextEra Energy Partners to take several steps to shore up its financial foundation. It cut its dividend growth rate by roughly half. The clean energy infrastructure company also launched a two-stage process to sell its natural gas pipeline assets to give it the funds to repay maturing convertible equity portfolio financings (CEPFs). It closed the sale of STX Midstream to Kinder Morgan in the fourth quarter, netting $1.4 billion in proceeds after paying off the related debt. That gave it the cash to address two of three near-term CEPFs. It plans to address the third one by selling its Meade pipeline in 2025.

The company also took advantage of an improvement in the interest rate environment in December to issue $750 million of 7.25% notes due in 2029. The company initially used the funds to repay its credit facility. That will allow it to use this facility to repay the 4.25% notes that mature in July and September.

These moves have significantly eased the near-term pressure on its balance sheet.

Growing confidence in its growth

Despite its headwinds, NextEra Energy Partners expects to grow its earnings, cash flow, and dividend in 2024 and beyond. The company expects its year-end run rate for adjusted EBITDA to be in the range of $1.9 billion and $2.1 billion in 2024. Meanwhile, it sees its CAFD year-end run rate ranging between $730 million and $820 million.

It also plans to grow its dividend by around 5% to 8% per year through 2026 (down from its initial aim of 12% to 15%), with a goal of 6% annually. The company noted that it can achieve its target this year without making an acquisition. Meanwhile, it won't need to issue more equity to fund its growth until 2027.

The company plans to achieve its reset dividend growth goal by repowering existing wind energy assets. It recently announced plans to repower an additional 245 megawatts (MW) of wind facilities through 2026, bringing its total to 985 MW. Those high-return projects will increase its wind energy capacity and cash flow.

Trying to thread the needle

NextEra Energy Partners has developed a strategy that will allow it to address its balance sheet issues while continuing to grow its high-yielding payout over the next few years. It has already made solid progress by selling STX Midstream, refinancing some debt, and securing additional wind repowering projects.

However, one concern about the company's strategy is that there isn't much room for error. NextEra Energy Partners anticipates that its dividend payout ratio will be in the mid-90s through 2026, which is very high. If something unexpected occurs, the company might need to further slow its dividend growth or cut its payout to give it more breathing room. That makes it a high-risk dividend stock, though one with a very high reward potential if it can deliver on its plan.