In the renewable energy sector, many companies that own the assets and sell the power to providers can actually generate reliable income streams. These are perfect for dividends.
Here’s one such stock in the space that dividend, and perhaps even growth, investors should think about buying.
NextEra Energy Partners
NextEra Energy Partners LP (NYSE: NEP) is a subsidiary of one of the world’s largest renewable energy providers, NextEra Energy Inc (NYSE: NEE).
While the latter is the largest regulated utility in the US, NextEra Energy Partners is provided with the renewable energy assets from its parent in order to generate income streams.
It’s proved to be a winning formula since NextEra Energy Partners went public in 2014. From 2015-2020, it has managed to grow its annual distribution per unit (DPU) – in other words its dividend – at a compound annual growth rate (CAGR) of 16.5%.
In fact, its latest quarterly distribution is 240% higher than at its IPO. NextEra Energy Partners has managed this by having first dibs on excellent assets from its parent, including wind and solar generating assets.
In the first quarter of 2021, NextEra Energy Partners managed to grow its adjusted EBITDA by around 20% year-on-year to US$354 million.
The more important number, for those looking at its distribution, is cash available for distribution (CAFD). On this front, it look even better.
In the latest quarter, CAFD was up 36% year-on-year – helping to drive a quarterly DPU of US$0.6375, which was up 15% year-on-year.
Building income for the future
That hasn’t seen the renewable energy provider rest on its laurels, though. NextEra Energy Partners announced just last month that it would be acquiring a 391-megawatt (MW) portfolio of wind power assets from fellow renewable energy provider Brookfield Renewable Partners LP (NYSE: BEP) for US$733 million.
Meanwhile, its continuous pipeline of dropdown acquisitions from its parent means it has the runway for future growth in its portfolio.
NextEra Energy Partners’ management is ambitious and is aiming to grow its distribution by an average of 12-15% per year up to 2024.
For investors looking at reliable income, while also riding on the clean energy theme, NextEra Energy Partners could be a great choice.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of NextEra Energy Partners LP and Brookfield Renewable Partners LP.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.