If uncertainty in stock markets has taught us anything, it’s that investors value predictable businesses and those with cash flows in the “here and now”.
However, long-term investors shouldn’t forget that investing in companies that are exposed to “megatrends” doesn’t always mean that these companies are high-growth but highly-volatile, loss-making businesses.
In fact, one area where growth, and profitability, can be found is in renewable energy. And in this day and age – when income is increasingly appreciated – stocks that pay reliable and sustainable dividends are worth a place in every portfolio.
It’s at this nexus between growth, reliability and income that clean energy firm NextEra Energy Partners LP (NYSE: NEP) sits.
Here’s why investors can consider adding this owner and operator of renewable energy assets to their portfolios for a mix of both growth and dividends.
Cleaning up our carbon footprint
When we do invest, “making the world a better place” now features among priorities for both institutional-level, as well as retail, investors.
In that sense, NextEra Energy Partners helps you achieve that. A listed subsidiary of NextEra Energy Inc (NYSE: NEE), the world’s largest renewable energy firm that also owns a utility in Florida, NextEra Energy Partners is a consistent performer when it comes to generating cash.
That’s because it owns and operates renewable energy assets that generate predictable and stable cash flows via contracted power purchase agreements (PPAs).
This gives shareholders incredible visibility as these contracts are usually multi-year in duration.
For example, in its latest third-quarter earnings, NEP saw adjusted EBITDA of US$334 million during the quarter, up around 7.5% year-on-year from the same period in 2020.
Meanwhile, its cash available for distribution (CAFD) fell slightly on the year although this was mainly due to higher costs associated with existing projects (see below).
Source: NextEra Energy Partners Q3 2021 investor presentation
Dividend supported by expansion
During the quarter, NEP closed on previous acquisitions it had announced – including a 400 megawatt (MW) portfolio of wind projects from a third party.
In October, the company also announced that it would be acquiring a 50% stake in a 2,500 MW renewables portfolio, in partnership with private equity firm Apollo Global Management.
This will continue to drive dividend growth, which has been robust in recent years. In its most recent quarter, NEP raised its distribution per unit (DPU) to US$0.685, up 15% year-on-year.
Since listing in mid-2014, NEP has grown its DPU by 265%. Furthermore, NEP expects to grow its distribution by 12-15% annually through 2024.
Fallen from highs
NextEra Energy Partners continues to do well, whatever the market conditions. With backing from its parent, it also has the financial firepower to keep acquiring clean energy assets.
With the stock yielding around 3.5% on a forward 12-month basis, it’s about 12% off its all-time high set in November last year.
However, as clean energy is likely to be one of the biggest megatrends of this decade, it could be worth buying and holding for the long term.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of NextEra Energy Partners LP and NextEra Energy Inc.
