This high yielding renewable energy stock has strong dividend growth ahead
Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A) stands out in today’s low-performance environment. The clean energy producer currently has a dividend yield 4.3%, significantly higher than the 1.3% return on shares in the S&P 500.
However, as attractive as the payout is right now, it will be even higher in the future. Clearway is currently planning to increase its dividend at an annual rate of 5% to 8%, with high-end growth expected this year. The potential for high-end dividend growth is increasingly likely to continue in the future, thanks to another groundbreaking acquisition.
A well-balanced acquisition
Clearway recently unveiled its latest renewable energy acquisition, which will give it more power to increase its dividend in the future. He purchases the remaining 50% stake in a portfolio of solar energy– production facilities in Utah that it does not currently own for $ 335 million. The portfolio consists of seven large-scale solar farms in Utah with a capacity of 530 megawatts (MW). They carried out commercial operations in 2016.
The portfolio sells power under long-term power purchase contracts (PPAs) to utility PacifiCorp, subsidiary of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B). The power purchase contracts have another 15 years and will generate between $ 9 million and $ 11 million in available cash for distribution (CAFD) each year for Clearway. The company plans to fund this transaction with $ 210 million to $ 240 million in project-level debt, giving it an expected equity commitment of $ 95 million to $ 125 million. This implies a CAFD yield of around 9%.
In addition to increasing its cash flow, the agreement has several other advantages. For starters, it increases its exposure to a high quality customer. The operation also further diversifies its portfolio geographically. These are remarkable aspects, given his earlier issues with the California utility. PG&E (NYSE: PCG). Finally, it further demonstrates that Clearway can secure transactions with third parties, reducing its dependence on acquisitions from its parent company Clearway Energy Group (CEG).
Increase your long-term growth prospects
Clearway has actively expanded its portfolio over the past year. It closed or pledged to invest $ 880 million in new growth investments last year. At the same time, it secured additional growth investments in 2021, including the purchase of the 264 MW Mt. Storm wind farm in West Virginia from a third party. These investments include development projects that CEG has underway and that Clearway will purchase once they reach commercial operation over the next two years.
These deals had enabled Clearway to generate $ 325 million, or $ 1.61 per share, from CAFD in 2021 and set the stage for it to produce $ 395 million, or $ 1.85 per share from CAFD, once its current list of deals is phased in over the next two years. This outlook supports the company’s plan to increase its dividend from 5% to 8% per annum through 2023. Meanwhile, the acquisition of Utah’s solar portfolio will bolster this plan, increasing the likelihood of a high-end dividend growth in the years to come.
Meanwhile, Clearway has a lot of additional growth in the pipeline. The company said in the second quarter that it was evaluating the option to buy a 50% stake in some community solar projects that could close in the second half of next year. Meanwhile, it is exploring an expansion of its solar fleet in Texas with CEG, which could close in 2023. Finally, it plans to enter into another co-investment agreement for up to 1.1 gigawatts of wind projects. , solar and storage that CEG has under development. These projects are on track to reach commercial operations by 2023 to 2024. Clearway’s ability to secure these and other transactions with third parties would improve and extend its prospects for dividend growth.
A great stock for income investors
Clearway Energy continues to secure renewable energy assets that generate cash flow. This gives him the power to grow his already high dividend at an attractive rate. This combination of revenues and increases makes Clearway one of the best renewable energy dividend stocks around, as it is expected to generate compelling total returns in the years to come.
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