CWEN - Dividend Cut Alert: Bad News For NextEra Energy Partners

2024-06-06 07:05:00 ET

Summary

• NextEra Energy Partners offers a high distribution yield and potential distribution growth.
• The company has also made meaningful progress in strengthening its financial position.
• However, there have been several pieces of bad news recently that make us increasingly bearish on the prospects for NEP's distribution's sustainability.
• We share where we are investing instead.

The bull thesis for NextEra Energy Partners ( NEP ) is pretty straightforward. It offers investors a very attractive 10.82% forward distribution yield along with management guidance for 5% to 8% distribution growth over the next several years, with management targeting a 6% CAGR over that time frame. Moreover, it is identifying a very large number of repowering projects that it plans to invest in to fuel that growth, with the total number currently at 1,085 megawatts through 2026. These repowering projects are relatively low risk and offer very high returns. Additionally, they could be primarily financed with project-level debt and Oregon tax credits, along with some retained cash flow net of distributions and potentially even some proceeds from asset sales and/or additional debt capacity as their EBITDA grows....

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