Rising borrowing rates have impacted profits and made it harder to fund expansion projects in the renewable-energy industry during the last year. NextEra Energy Partners (NYSE: NEP), owner of the world's largest wind and solar fleet, has suffered the most.
NextEra's assets usually have long-term energy sales contracts with utilities, locking in cash flow for years or decades. Higher interest rates will reduce returns since projects are financed with debt. To meet financial obligations, the corporation sold some assets.
Debt expiring in the next several years is NextEra Energy Partners' next challenge. The corporation has $1.3 billion in debt expiring in 2024, $702 million in 2025, and $2.0 billion in 2026. Some of the debt has sub-1% interest rates that will grow substantially when refinanced.
Funding partners for certain initiatives from years ago must be bought out. The management of NextEran Energy Partners sold pipeline assets to support CEPF buyouts in 2024 and 2025. If CEPF projects aren't bought out, more projects will require funds, which may necessitate selling assets or accepting lower cash returns
NextEra Energy Partners' convoluted structure makes investors wary of the company. How much dividend cash remains after project financing is questionable. However, management anticipates run rate adjusted EBITDA to remain constant at $1.9 billion to $2.1 billion in 2024. Cash for distribution is likely to stay between $730 million and $820 million.
By 2024, dividends are predicted to reach $3.73, giving the stock a 14.1% yield. With a 6% objective, that payment is likely to climb 5% to 8% through 2026. Given the high yield, investors consider the dividend to be risky long-term, but management insists otherwise.
Over the past two years, NextEra Energy Partners has gone from growth to survival. CEPF buyouts and debt refinancing make it challenging to finance new projects. The dividend pledge doesn't help.
This provides management several possibilities. The stock's market worth is $2.5 billion and long-term debt is $6.3 billion. The company expects $1.9 billion to $2.1 billion in adjusted EBITDA. That cash might help management pay down debt or make high-value investments to boost cash flow. Debt reduction should include dividend cuts.
NextEra Energy Partners is a strong corporation with assets that will provide money for decades. Though it may have been overpriced during low-interest-rate years, I think the correction has overshot to the negative now that rates are up. Management faces questions but has alternatives. Holding the stock earns investors a huge dividend.
stay turned for development