NextEra Energy Partner‘ (New European Commission) 0.12%) Dividend is currently over 14%. That is 10 times higher than the S&P500‘S Dividend yield. While a double-digit dividend yield may seem tempting, it usually signals that the market does not consider current payout levels sustainable.

I agree with the market that Dividend stock for renewable energies will eventually cut its high payouts. Here is the reason I predict A dividend cut could occur within the next Year.

No room for error

NextEra Energy Partner currently believes not only that Be able to maintain dividend payments but also to further increase its payments. The aim is to increase the payout by 5 to 8 percent annually by 2026, with a target of 6 percent. recently increased his payment by a further 1.4% compared to the previous quarter and is thus 6% above the previous year’s payment.

The company is pursuing a two-pronged strategy to implement its dividend growth plan. The company expects to complete 1.3 gigawatts (GW) Wind energy Repowering projects until 2026 To organic increase your cash flow. These high-yield projects will see the company install larger wind turbines in existing wind farms that will produce more power and cash flow. The company has already secured nearly 1.1 GW of these projects and is well on its way to achieving its goal.

The other aspect of the plan is to sell its natural gas pipeline businesses by next year. These sales will provide the company with the funds to pay off maturing financings and acquire additional renewable energy assets. NextEra sold its STX Midstream business late last year for over $1.8 billion. This sale will allow the company to fund the acquisitions of upcoming financing maturities by next June. Meanwhile, the company plans to sell its Meade Pipeline business next year to fund additional acquisitions and future renewable energy acquisitions.

NextEra Energy Partners is pursuing a strategy to continue to increase its dividend while strengthening its financial position. However, the plan leaves no room for error. The company expects its Dividend payout ratio in the mid-90% range by 2026, which is extremely high. If the company encounters an unexpected setback, it may have to cut its dividend to keep more cash to fund future takeovers and acquisitions.

The cost of capital Puzzle

Rising interest rates in recent years have made it more difficult for NextEra Energy Partners to refinance debt and finance acquisitions on attractive terms. Capital costs. Interest rates are high, as is the dividend yield, which has made issuing new debt and shares too expensive. So the company has relied on asset sales and high-yield organic expansion projects to repay maturing financing and increase its cash flow and dividend.

The company must have a better Costs for Capital to get in a more sustainable long-term basis. This leads to Explore all options to remedy the situation. The company’s CEO, John Ketchum, noted on his Second quarter conference call that securing private capital is a possible alternative that the company is considering. A preferred equity investment or something similar would provide additional capital that the company could use to repay future acquisitions and finance acquisitions.

The company may also have to reset its dividend as part of such an investment agreement. Ketchum stated in the conference call that “the partnership’s target of 6% payout growth remains currently.” One analyst who participated in the conference call noted the last part, pointing out that this is fairly new wording regarding the dividend.

The CEO seems to be Provide guidance to lay the foundation for future payout cuts. A reduction in the dividend would surely help reduce the cost of capital because the company could then use the free excess free cash flow to finance acquisitions and future capital repayments.

A dividend cut seems inevitable

The market does not believe NextEra Energy Partners will be able to maintain its current dividend level for much longer. I agree. I expect the The company will ultimately reset its dividend to a significantly lower level (likely 50% or more below the current rate) to preserve additional cash to finance acquisitions and strengthen its balance sheet. A cut would initially be painful, but would enable the company to potentially creates long-term value for shareholders as it should increase the share price and improve the growth rate per share. Given the likelihood of a dividend cut is not the best option for investors looking for a lucrative and sustainable source of income at the moment.