Last year was a pivotal one for Clearway Energy (CWEN 0.26%) (CWEN.A 0.28%). One of the renewable energy producer's largest customers reemerged from bankruptcy, freeing up the cash flow tied to the contracts associated with the energy-generating assets. That gave Clearway the flexibility to reset its dividend and make several needle-moving investments to power its results over the next few years.
The company made significant progress on its growth strategy over the past few months. Because of that, it's increasingly likely to deliver on its strategy to increase its 4.7%-yielding dividend at a 5% to 8% annual rate.
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Ending 2020 on a high note
Clearway Energy produced $30 million in cash available for distribution (CAFD) during the fourth quarter of 2020, up 36% year over year. That pushed its full-year CAFD total to $295 million, a more than 16% increase from 2019's level. Powering that excellent finish to the year was the acquisition of Carlsbad in late 2019, stronger wind resources primarily at its Alta project, and higher performance across its solar energy fleet.
The company also secured several new investment opportunities during the period. In November, Clearway purchased 100% of the recently repowered 160-megawatt (MW) Langford Wind Project in Texas from its parent Clearway Energy Group (CEG). The company paid $64.3 million for the asset, which should produce an average of $8.5 million of CAFD over the next five years.
Meanwhile, in December, Clearway unveiled a co-investment transaction with REIT Hannon Armstrong Sustainable Infrastructure Capital (HASI 2.12%) for a portfolio of 1.2 gigawatts (GW) of renewable energy projects developed by CEG. Clearway expects to invest about $215 million into this portfolio by the end of next year. While this investment will contribute minimal CAFD this year, it should produce $8 million next year and an average of $20 million for the five-year period starting in 2023.
Starting 2021 off with a bang
Clearway has continued to secure new investments this year. Last month, it agreed to purchase an additional 35% interest in the Agua Caliente solar energy project in Arizona from NRG Energy (NRG -0.07%). It's paying $202 million to increase its stake in the 290 MW project to 51%. This investment will provide an incremental $20 million of CAFD over the next five years.
Finally, the company also agreed to buy the 264 MW Mt. Storm Wind Farm in West Virginia from Castleton Commodities International. It's paying $96 million for the project. While it won't contribute much CAFD this year, it should produce an average of $10 million annually over the next five years.
With these latest additions, Clearway Energy has now secured more than $975 million of new investments over the past year. The company estimates that they'll boost its pro forma CAFD to $385 million, or $1.80 per share, once they all start contributing. That implies a more than 30% increase from 2020's level.
That outlook gives Clearway the confidence that it can increase its dividend by 5% to 8% per year. The company anticipates achieving the high end of that range this year. It has already given its investors a 1.9% increase for the first quarter.
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Even more growth ahead
Clearway Energy is working with CEG on another co-investment opportunity. The companies are discussing the drop-down of 1.1 to 1.7 GW of renewable energy projects that would close in the 2021 to 2023 timeframe. In addition to that, Clearway Energy plans to make additional third-party acquisitions as opportunities arise. Future deals would further enhance the visibility of its long-term dividend growth strategy.
The company has increased financial flexibility to capture future opportunities after executing $1.4 billion of financing transactions last year. It optimized project-level debt, raised new funding at the corporate level, and recycled capital by selling non-strategic assets. It has also brought in funding partners like Hannon Armstrong to co-invest in opportunities. The company's ability to continue securing financing solutions will enable it to capture additional value-creating investments to power dividend growth.
A bright future
Clearway Energy has done an excellent job growing its clean energy portfolio over the past year. It secured several needle-moving investment opportunities that position it for high-end dividend growth this year and provide it with plenty of power to keep growing it over the next few years. That increasingly visible outlook makes Clearway Energy look like an excellent income stock to buy and hold for the long term.
