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Clearway Energy Cited For Potential Dividend Growth

By District Energy posted 07-22-2020 07:34


Motley Fool


Clearway Energy has been far from a dream dividend stock in recent years. The clean-energy company started well, growing its payout every quarter from its IPO in late 2013 through the end of 2018. However, that streak ended abruptly when one of Clearway's largest customers -- California electric utility Pacific Gas and Electric Company (PG&E) (NYSE:PCG) -- filed for bankruptcy in early 2019. That forced Clearway to slash its payout by 40% because its creditors restricted its access to the funds paid by PG&E until that company completed its restructuring. 

That reset payout, which Clearway boosted by 5% earlier this year, is on a much firmer foundation because the company has been reducing its reliance on PG&E by making a steady stream of acquisitions. Add that factor to PG&E's recent reemergence from bankruptcy, and Clearway appears poised to become a dividend investor's dream stock in the coming years. 

Clearway Energy owns a diversified portfolio of electricity-generating assets, powered by both renewables and natural gas. It also operates one of the country's largest district energy and combined heat and power (CHP) portfolios. These assets produce steady cash flow backed by long-term, fixed-rate contracts with end users like utilities and commercial customers.

The company currently expects to generate about $310 million, or $1.56 per share, of cash this year, 22% above last year's total thanks to recent acquisitions. At the current dividend rate of $0.21 per share each quarter, that puts Clearway's payout ratio at a conservative 54%, enabling it to retain lots of cash to power future growth. The company also has a solid balance sheet, with leverage metrics within its target range.

Meanwhile, Clearway expects its annualized cash flow run rate to rise to $340 million, or $1.70 per share -- a 9% increase -- once it completes the acquisition of three wind power projects early next year. Those assets will further diversify the company's cash flow away from PG&E, putting its payout on an even firmer foundation.