Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A) is one of the many beneficiaries of the country’s transition to cleaner energy sources. The company finds a steady stream of investment opportunities to increase its recurring cash flow. This gives it the funds to continue increasing its dividend.
With a broad opportunity set and financial flexibility, Clearway should continue to deliver steady dividend growth over the next few years. This makes it an excellent option for investors looking for a renewable energy-powered passive income flow.
A great performance to start the year
Clearway Energy recently released its first quarter results. The clean energy producer posted strong numbers. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 31.3% to $260 million. The company has benefited from recent growth investments and strong production in its line of business solar wallet. This makes it possible to compensate for performance below expectations in its wind wallet.
Cash available for distribution (CAFD) was negative $2 million during the period, representing an improvement over A negative $15 million last year. It was also within its estimated quarterly sensitivity range for what is historically a seasonally lower quarter.
More progress on the strategic growth plan
The biggest news was the recent closing of the sale of its thermal business. The deal provides Clearway with unprecedented financial flexibility as it received $1.35 billion in net proceeds. The company used the funds to immediately repay the company’s temporary loans. He plans to eventually redeploy all that capital into new opportunities.
Clearway currently has approximately $600 million in growth investments lined up. This includes a $22 million investment in a 39 megawatt (MW) solar project with 156 megawatt hours of storage capacity currently under construction in Hawaii. It is expected to start commercial operations in the second half of this year.
Meanwhile, the company is making progress in rolling out the remaining $750 million. He is currently working with his sponsor, renewable energy developer Clearway Energy Group, on more than $300 million in future down deals. This represents a small part of this company’s huge and growing development pipeline.
This growing pipeline of investment opportunities gives Clearway confidence in its long-term prospects. With the sale of its thermal business complete, Clearway now expects to generate $365 million in CAFD this year. That’s down from its original outlook of $395 million, assuming a full year of thermal activity at $40 million in CAFD.
However, the company expects the redeployment of proceeds from the sale to drive significant growth for CAFD in the coming years. The $600 million in investments it has already secured will increase its pro forma annualized CAFD to $385 million upon closing of these transactions. Meanwhile, he believes he can increase his CAFD to over $440 million by deploying the remaining $750 million. It is making progress on this, with the potential $300 million drop it is currently exploring which could increase its annualized CAFD by $26 million.
This outlook supports Clearway Energy’s view that it can increase its dividend towards the upper end of its annual range of 5% to 8% through 2026. The company recently increased its payout by an additional 2%, pushing the dividend yield at 4.5%.
Strong passive income growth ahead
Clearway Energy received a huge windfall by selling its thermal business. The company thinks it can deploy these products in new investments to make up for lost revenue and then some. This should give the company the power to generate high-end dividend growth over the next few years, making it an attractive stock for passive income seekers.
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Matthew DiLallo has positions in Clearway Energy, Inc. The Motley Fool does not have positions in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.