Clearway Energy: Clean energy assets are a compelling buy (NYSE: CWEN)

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Renewable Energy YieldCo Clearway Energy (NYSE:NYSE: CWENNYSE:NYSE: CWEN.A) ended fiscal 2021 by meeting many of its stated financial goals. The company dramatically expanded its clean energy asset base, improved its CAFD ahead of forecast and increased the dividend paid to the owners of its common shares. It was truly an important year for Clearway, with the company closing approximately $820 million in growth investments as well as issuing $1.3 billion in new corporate bonds to strengthen its balance sheet. This latest action extended its debt maturity profile to 2028 and provided the company with interest rate savings.

Fiscal 2022 is expected to be an even stronger year for asset growth thanks to Clearway’s sale of its thermal business. The company expects net proceeds of $1.35 billion to be bundled with retained growth investment capital of $750 million. This will provide Clearway with the financial capacity to execute its long-term growth objectives. For dividend investors, this includes management’s advice to achieve the upper range of their annual dividend growth target of 5% to 8% until at least 2026.

This financial outperformance comes against a backdrop of rising energy prices exacerbated by the Russian invasion of Ukraine. Energy security has suddenly returned to the national lexicon as the importance to US national security of reduced reliance on energy imports has been underscored by the overreliance of other NATO allies on vis-à-vis Russia for their energy. This will unleash a new world where renewable energy will play an increasingly important role in ensuring energy independence.

Power generation from renewable energy sources will occupy a vanguard position in the new world that has already seen the United States ban imports of Russian oil, liquefied natural gas and coal.

Clearway’s Fiscal Year 2021: Asset Growth and Higher Returns

Clearway is one of the largest developers and owner-operators of large-scale renewable energy projects in the United States. The company continues to expand its clean energy asset base and now owns 5.2GW of renewable energy generation assets with an energy pipeline expected to reach 19.1 GW. Construction of up to 2 GW is expected to begin this year.

Clearway Energy Inc 2021 Financial Results

Clearway Energy Inc 2021 Financial Results

With much of this pipeline still in its infancy, Clearway is positioning utility-scale solar to make up the bulk of its future CAFD and dividend growth to 6.71 GW. This is closely followed by new wind construction and stand-alone energy storage.

Adjusted EBITDA for the year reached $1.15 billion, an increase of 6.28% over the prior year. The Company’s cash flow from operating activities increased to $701 million at the end of its 2021 fiscal year, this was a 28.6% increase over the previous year. CAFD increased to $336 million, a lower increase of 13.9% from the prior year.

Clearway Energy 2021 Financial Results

Clearway Energy Inc 2021 Financial Results

This allowed the company to increase its quarterly dividend by 2% to $0.3468 per share. At $1.3872 annualized, that puts the current yield at 4.23%.

Clearway has sufficient cash and cash equivalents to maintain this dividend payout and also to proceed with an ongoing capital allocation to grow its asset base to fully realize its 19.1 GW clean energy pipeline. . The current dividend is also fully covered by CAFD.

Low-carbon infrastructure for the new world

The new world began on February 24, 2022. The most direct consequence for Clearway will be the opening of a strategic field for renewable energies as a tool to achieve energy independence and not only to fight against climate change. The events of the past few weeks highlight the need for the United States to invest more in green energy generation and storage capacity in the years to come. The war put energy security in a new light and underscored the importance of renewable energy in decoupling economies from the vagaries of global geopolitics.

The importance of Clearway’s asset base is even greater with the parallel increase in electric vehicle purchases in the coming years. The new world is expected to see the demand for energy increase exponentially. Clearway will be a necessary piece to see production match this growth in demand. The global transition to a low-carbon economy is a long-term trend that will see tens of billions invested each year for years to come to decarbonize North America’s energy supply. This ambitious effort aims to contain a future where climate change unleashes destructive effects on us all.

Clearway Energy is a top clean energy public company based on its strong balance sheet, high CAFD production and ambitious pipeline that the company is sufficiently capitalized to achieve. With continued financial discipline, the company should be able to achieve at least the middle of its annual dividend growth target of 5% to 8% through at least 2026.