Many dividend investors focus on stock yields. But the data points to an even more important factor. It is the company’s ability to increase payments. A study by Ned Davis Research and the Hartford Funds found that over the past 50 years, companies that paid dividends without changing their dividend policy significantly outperformed companies delivering 10.7% total returns on an annualized basis. increase.
Many companies pay attractive and ever-growing dividends.However, it stands out with an above-average combination dividend yield Excellent Dividend Growth Prospects: NextEra Energy Partners (nep -0.03%)Dividend investors will want to consider adding to their portfolio.
compelling value proposition
NextEra Energy Partners Dividend stock:
Image Source: NextEra Energy Partners Investor Presentation.
As the slide shows, the company is one of only 186 companies in the world. S&P 1000 with market capitalization Over $5 billion. This will give you a reasonable size. Larger companies can benefit from scale advantages. However, it is usually more difficult for large companies to grow rapidly.
Of that group, NextEra Energy Partners dividend yield 2.25% (which is of the S&P 500 1.67% dividend yield). For the company, he currently yields 4.14%. Companies with high dividend yields typically have slower growth. This is because they typically pay a larger percentage of their cash flow through dividends rather than retaining earnings to fund growth.
As such, only 14 of these high-yielding stocks have achieved dividend-per-share growth of over 50% over the past five years. For NextEra Energy Partners, it has nearly doubled its dividend over the past five years and has grown an astounding 94.4%.
NEP Dividend Data by YCharts
Meanwhile, only three of the remaining companies expect compound annual dividend per share growth of more than 12% over the period 2021-2024. However, only NextEra Energy Partners expects to grow its dividend by more than 12% by 2025 (he targets an average annual dividend increase of 12% to 15% over the same period).
This combined dividend growth and yield will empower NextEra Energy to generate total returns of 16% to 20% annually over the next few years. It will continue its way of beating the market. It has delivered nearly 18% annual total returns over the past five years.
What drives NextEra Energy Partners’ dividend?
NextEra Energy Partners’ dividend is on solid footing. The company owns a large portfolio of clean energy infrastructure, including wind farms, solar power facilities and natural gas. pipelineThese assets generate stable cash flow backed by long-term contracts utility and other end users. This provides the company with predictable and stable cash flow to support dividends.
The company pays out about 80% of its profits in dividends. This gives you a nice cushion while still allowing you to keep some cash to fund your expansion.
NextEra Energy Partners has several other sources of funding to fund its growth. One notable option that the company has used several times in recent years is convertible equity portfolio financing. We coordinate this funding structure with institutional investors such as pensions and private equity funds. Pay low, fixed interest rates on funding backed by a portfolio of revenue-generating infrastructure. NextEra Energy Partners has the right to purchase this loan for a fixed return in either cash or stock. This will allow NextEra Energy Partners to raise equity capital while limiting dilution to existing shareholders.
Another big factor behind the company’s rapid dividend growth is its strategic relationships with large utility companies. next generation energy (Hey you -0.46%)Its parent company regularly drops down cash flow infrastructure assets to affiliates. These transactions will provide the utility with cash to fund new investments and increase the partnership’s cash flow to support its dividend growth plans. For example, in November, NextEra withdrew a 49% stake in his 1.5GW renewable energy portfolio and a 100% stake in a 345MW portfolio of wind assets under operation to a partnership. The company is closing the transaction by securing a 10-year convertible stock portfolio financing agreement with the Ontario Teachers’ Pension Plan Board for his $805 million backed by these and other assets. provided funding to
NextEra Energy has a vast portfolio of clean energy infrastructure assets in operation and under construction, providing significant visibility into the growth of NextEra Energy Partners. In addition, the company can make third-party acquisitions and complete organic expansions to drive dividend growth.
high dividend stocks
NextEra Energy Partners stands out for its combination of yield and dividend growth for a company of this size. It can be a great addition to an income-seeking investor’s portfolio as it can offer rapidly rising payouts backed by high quality clean energy assets. It can also boost their returns significantly, as they can generate total returns that overwhelm the market.
Matthew DiLallo holds positions at NextEra Energy and NextEra Energy Partners. The Motley Fool invests in and recommends NextEra Energy. The Motley Fool’s U.S. headquarters has a disclosure policy.