NextEra Energy Partners (NEP +3.48%) has an ambitious plan. The clean energy-focused company expects to increase its already above-average 3.9%-yielding dividend by an eye-popping 12% to 15% yearly pace through at least 2024. It made excellent progress with that plan during the third quarter, which once again demonstrated that this company could deliver high-powered growth.
A look at NextEra Energy Partners' third-quarter numbers
|
Metric |
Q3 2019 |
Q3 2018 |
Change |
|---|---|---|---|
|
Adjusted EBITDA |
$315 million |
$203 million |
55.2% |
|
Cash available for distribution (CAFD) |
$147 million |
$81 million |
81.5% |
|
CAFD excluding Desert Sunlight |
$125 million |
$81 million |
54.3% |
Data source: NextEra Energy Partners.
NextEra Energy Partners generated explosive growth during the third quarter, even after excluding the cash flow of its Desert Sunlight assets tied to bankrupt utility PG&E (PCG 1.02%). The main power source driving growth in the quarter was the acquisition of renewable energy assets from its parent, NextEra Energy, over the past year. Last fall, the two companies hooked up in a $1.275 billion deal, which added one solar power facility and 10 wind farms to NextEra Energy Partners' portfolio. Meanwhile, this spring, the two companies teamed up in a $1.02 billion transaction, which added another six wind and solar facilities to its operations.
Overall, these new additions provided the company with an incremental $104 million of adjusted EBITDA and added $59 million of CAFD to the company's third-quarter tally. Meanwhile, the company's existing assets performed well during the period, boosting their EBITDA tally by $13 million and CAFD by $15 million. Powering that incremental income were strong wind conditions during the third quarter, with the wind resource coming in at 107% of the long-term average. That's a significant improvement from recent quarters in which the wind has been below the long-term average.
Image source: Getty Images.
More fuel is on the way
NextEra Energy Partners is in the process of adding even more power sources for its growth engine. At the end of the quarter, it agreed to acquire the Meade Pipeline Company for $1.37 billion, which includes $90 million of future expansion-related spending through 2022. That company owns a 39.2% interest in the Central Penn Line, which is a 185-mile pipeline that moves natural gas out of the Marcellus shale region.
The company also agreed to purchase all the outstanding notes of Genesis Solar. It formed that entity in 2011 to fund the development of a 250-megawatt solar power facility in California that began operations in 2014. As a result of this transaction, NextEra Energy Partners will be able to unlock $59 million of restricted cash at the project. The company is funding this debt purchase with $500 million of notes due in 2026 that have a 3.875% interest rate, which will reduce that project's overall interest rate.
These moves will increase the company's annualized CAFD run rate to a range of $505 million to $585 million, even after excluding the cash flow of the Desert Sunlight projects tied to PG&E. That's enough cash flow to support the company's plan to grow its dividend by a 12% to 15% average annual rate through 2020 without needing to make any more acquisitions. Meanwhile, the company continues to believe it can maintain that dividend growth pace through at least 2024 by acquiring more assets from its parent as well as third parties after next year.
An enticing dividend growth stock
Thanks to its acquisition spree over the past year, NextEra Energy Partners' cash flow is soaring, which was evident in the third quarter. As a result, it now has enough power to fund its dividend growth plan through next year, even with the potential impact of PG&E's bankruptcy on its cash flow. That increased visibility makes it an even more appealing stock for investors who want a fast-growing dividend.
