Clearway Energy (NYSE: CWEN) (NYSE: CWEN-A) had a monster year in 2020 as its shares soared more than 60%. Throw in your rapidly expanding high-yield dividend, and the total yield is over 65% in 2020. Due to that surge in energy, Clearway’s stock may appear to be running out of steam.
However, that is not the case at all. The renewable energy generator has plenty of juice to keep running. This is what the future holds for the dividend-paying clean energy company.
What drove the increase this year?
Clearway Energy had a great year in 2020. The company is on track to generate $ 310 million of cash available for distribution (CAFD). That’s about 22% above the $ 254 million 2019 total in CAFD. A steady stream of new investments fueled that growing cash flow. Clearway secured $ 386 million of cumulative growth investments in 2019 and signed more than $ 450 million in new deals through the third quarter of 2020.
On top of that, one of the company’s largest clients, California utility PG&E (NYSE: PCG), emerged from bankruptcy in 2020. That freed up cash trapped in assets under contract with the utility. by Clearway Lenders. Thus, Clearway was able to reinstate its dividend, which it cut in 2019 when PG&E filed for bankruptcy, and used the funds accumulated over the past year to make acquisitions. Overall, the company increased its dividend three times this year for a total increase of 59%.
A lot of power to keep growing
At the end of the third quarter, Clearway’s investments in 2020 had the company on track to generate $ 325 million, or $ 1.61 per share, of CAFD in 2021. With the company’s current dividend outlay at $ 0.318 per share per quarter, or $ 1,272 annualized, is on track to pay 79% of its CAFD, which is just below its target range of 80% to 85%. Because of that, Clearway anticipates increasing its dividend towards the upper limit of its annual target range of 5% to 8% in 2021.
Clearway has secured several other investments over the past year that will bolster its results in 2022 and beyond. By the end of the third quarter, Clearway’s current investment portfolio was set to grow its proforma CAFD to an annualized rate of $ 345 million, or $ 1.71 per share, when all of its deals are closed and new projects come online. Meanwhile, the company recently improved its expansion outlook by agreeing to acquire an additional 35% stake in the Agua Caliente solar power project for $ 202 million. The company expects that deal, which should close in the first quarter, will add about $ 20 million of incremental annualized CAFD before accounting for the financing.
In addition to that assured growth, Clearway has another $ 230 million to $ 240 million of potential short-term investment opportunities lined up thanks to its relationship with renewable energy project developer Clearway Energy Group. That portfolio includes several renewable energy projects that will be online in the 2021-2022 period.
Finally, there are significant long-term investment opportunities ahead for Clearway thanks to Clearway Energy Group. For example, that company has 2.8 gigawatts (GW) of new renewable energy projects in development with specific commercial commissioning dates in 2023. To put that in perspective, Clearway’s current renewable energy portfolio consists of approximately 1.3 GW of solar energy assets and 2.4 GW of wind generation. Meanwhile, many industry forecasters anticipate that renewable energy project development will accelerate in the coming years thanks to falling costs and growing concerns about climate change. As a result, Clearway Energy should have no shortage of investment opportunities to support its dividend growth strategy.
More growth ahead
Clearway Energy may or may not generate total returns approaching 65% again in 2021. However, it still has potential to outperform the market. With a dividend yielding nearly 4% that it expects to grow at an annual rate of 5% to 8% as it continues to expand its renewable energy portfolio, Clearway could generate total annual teenage returns from here. This is why it is one of the most attractive purchases in the renewable energy sector these days for investors looking for an ever-increasing stream of income.
