NextEra Energy Partners: Between Dividend Cuts and Growth Prospects

NextEra Energy Partners is currently the focus of investors, as the company had to adjust its growth strategy in the face of rising interest rates. This increase in interest rates has led to a rise in capital costs, complicating the refinancing of existing funds or securing growth capital. Therefore, it was necessary to reconsider previous plans. In May 2023, the company took a significant initial step by announcing a focus on renewable energy. The phased sale of natural gas pipeline assets, including the sale of STX Midstream to Kinder Morgan for $1.8 billion, is intended to finance the necessary equity takeovers due by 2026. The next planned sale involves Meade Pipeline next year to support further investments. Another significant change was the reduction of the dividend growth forecast from the original 12%-15% to now 5%-8% per year until 2026. The main driver for future growth is now to invest in projects to modernize wind farms by replacing older turbines with more efficient ones. However, these plans also raise concerns. The dividend payout ratio is expected to be high until 2026, increasing the risk of a dividend cut. Additionally, new growth capital will be needed in 2027. If the capital cost situation does not ease by then, a significant dividend cut might be necessary, with a potential scenario being a cut of 50%. Despite this potential cut, investors could still benefit from an above-average yield. Additionally, there is the possibility of a price increase, as the company strengthens its balance sheet sustainably. Despite a stock decline of over 70%, NextEra Energy Partners has a growing portfolio of long-term secured clean energy assets, which can make valuable contributions to the energy transition. The company could significantly contribute to the expansion of renewable energy capacities by acquiring income-generating projects from developers like its parent company NextEra Energy. If the financing strategies become more sustainable, the stock price could also grow. Investors looking for stable income might refrain from investing, as the dividend cut is quite likely. But for more risk-tolerant investors who are open to growth potential, NextEra Energy Partners remains an interesting candidate.