Shareholders of this dividend company have a lot to look forward to over the next two years
When you say clean energy, most of us think of solar and wind power. But what if there's a company that not only produces energy from these sources, but also delivers extraordinary financial benefits to investors? This company has committed to ambitious dividend growth of between 5% and 8% a year until 2026. Can it deliver on its promises?
Renewable energy has seen a significant rise in popularity in recent years. More and more countries and companies are investing in sustainable and environmentally friendly solutions that help reduce dependence on fossil fuels and improve the quality of the environment. In this context, clean energy is becoming not only an ethical choice but also an attractive investment opportunity. So why is this market segment so interesting? Find out in the following lines.
Company introduction
Clearway Energy, Inc. $CWEN-0.8% is a leading U.S. clean energy company. The company has become a major player in the renewable energy industry due to its broad portfolio of projects and innovative approach to sustainability and efficiency.
Scope
Clearway Energy operates primarily in the United States, where it has a distributed renewable energy network across many states. Its activities include the operation of solar and wind power plants, as well as gas-fired and steam power plants, which ensure the stability and reliability of the energy grid. The company manages more than 4.2 GW of installed renewable energy capacity and is one of the largest clean energy providers in the country.
Products and Services
Clearway Energy focuses on several key products and services that support its mission to provide clean and sustainable energy:
Solar: The company owns and operates large-scale solar farms that use photovoltaic technology to generate electricity. These solar projects are located in areas of high solar radiation, maximizing their efficiency.
Wind farms: Clearway Energy also invests in wind farms that generate power using wind turbines.
Gas and steam power plants: In addition to renewables, the company operates traditional gas and steam plants that serve as a complement to variable renewables and provide a stable supply of energy.
Distributed Energy and Microgrids: Clearway Energy also offers distributed energy and microgrid solutions that allow communities and businesses to generate and consume their own energy on-site.
History
Clearway Energy was founded as an offshoot of NRG Energy, one of the largest energy companies in the United States. In 2018, Clearway Energy spun off and began operating as an independent entity with a focus on clean energy. Since then, it has expanded its portfolio and strengthened its market position through acquisitions and development of new renewable energy projects.
With its solid foundation and strategic initiatives, Clearway Energy has become one of the clean energy leaders in the US. Its commitment to sustainability, innovation and reliability makes it an attractive partner for municipalities, businesses and individuals seeking sustainable energy solutions.
Company overview, assets and financial performance
Clearway Energy is a leading energy company focused on the generation and distribution of renewable energy. The company has approximately 6,200 MW of installed capacity from wind and solar power plants as well as battery energy storage. The total capacity of Clearway Energy's energy assets is 8,700 MW, of which 2,500 MW are gas-fired generation facilities that can also be considered part of the clean energy portfolio.
Partners
Clearway Energy works with several major partners, such as PG&E Corporation (PCG), Verizon (VZ) and Southern California Edison. The company owns 100% of most of the projects and has a 50% interest in some. Its customer base is geographically diverse, with many customers located on the West Coast of the U.S., where there is a high demand for clean energy and ample sunlight for solar power.
Financial performance and cash flow
Clearway Energy differentiates itself from many other clean energy companies by it is already profitable and generates positive cash flow. Over the past 12 months, the company generated $708 million from operations and generated an operating profit of $209 million. The company's market capitalization is $5.2 billion, making its price-to-operating cash flow ratio relatively low (7x). The large difference between operating cash flow and operating profit is due to the company's use of depreciation of its assets for tax purposes.
Production efficiency
Success in renewable energy depends on location and efficiency. Clearway Energy has done very well in this regard. For example, it achieves 123% efficiency in California and 100% in Texas and the eastern US. The efficiency of the solar portfolio varies between 85% and 94% per month depending on the amount of sunlight, with an average of 90%. Energy availability ranges between 89% and 99%, showing that the company is efficiently using almost all available energy.
Profitability and margins
Clearway Energy's financial profitability metrics are mixed. The company's gross margin is 62%, which is well above the sector median (45%) but below the company's average over the past five years (66%). EBIT margin is 16%, which is below the sector median (21%), but EBITDA margin is 73%, which is well above the sector median (36%). This difference is due to depreciation and amortization, which is a large portion of the company's costs.
Dividend policy
Clearway Energy pays a healthy dividend with a yield of 6.23%. The dividend growth shows a positive trend, although it has not been consistent each year. The annual dividend growth is 7.7% and the three-year compound annual growth rate is 10%. The company pays out $1.64 per share annually, generating approximately $3 per share of operating cash flow, making its dividend payout more sustainable.
Analysis of key metrics
Clearway Energy exhibits solid financial health, with a market capitalization of $5.27 billion. The company has 199.50 million shares outstanding, making it a major player in the clean energy sector and indicating a broad investor base.
With annual revenues of USD 1.36 billion, Clearway Energy is proving its ability to generate stable revenue, which is key to maintaining investor confidence. The average daily trading volume is 837.95 thousand shares, indicating good liquidity in the company's stock. This is a positive for investors looking for an easy entry and exit strategy, as higher liquidity usually means less price fluctuations on large trades.
The company's valuation indicators show that investors are willing to pay a premium for the company's earnings. In fact, the P/E ratio is 40.62, indicating high expectations for the company's future growth. A higher P/E ratio often indicates that investors believe in strong growth potential, which may be due to the company's focus on renewable energy. The P/B ratio is 1.50, which is slightly above the sector average, indicating that the stock is not undervalued. The P/S ratio of 3.88 then indicates solid earnings relative to market capitalization.
One critical factor is the company's debt. The debt-to-equity (D/E) ratio is 3.96, indicating that Clearway Energy is using a significant amount of debt financing. Higher debt levels can be risky, especially if interest rates change or revenues decline, as debt service costs could negatively impact profitability. The debt-to-capital (D/C) ratio is 0.80, further confirming that debt makes up a significant portion of a company's total capital.
What was company's last quarter?
The company signed agreements with Clearway Group to invest in 55 MW of wind projects and 257 MW of solar plus storage projects. It also entered into new resource adequacy contracts for its Marsh Landing and Walnut Creek projects. The company also confirmed its financial plans for 2024 and announced an increase in its quarterly dividend. Clearway Energy continues to target annual dividend growth in the range of 5% to 8% through 2026.
For the first quarter of 2024, the company reported a net loss of $(46) million, adjusted EBITDA was $211 million, cash flow from operations was $81 million and free cash available for distribution (CAFD) was $52 million. According to Craig Cornelius, Clearway Energy's incoming president and CEO, the first quarter results highlight the benefits of the company's geographic and technological diversification of its fleet.
Compared to the first quarter of 2023, availability was higher in the conventional segment primarily due to the timing and length of maintenance outages. Production in the Renewables segment was 10% higher due to new investments. The Company's total liquidity at March 31, 2024 was $1,435 million, $70 million lower than at December 31, 2023, primarily due to debt repayments and the realization of growth investments.
Major investments include the acquisition of the 160 MW Cedar Creek wind project in Idaho for $117 million and the commitment to acquire a 50% interest in the Dan's Mountain Wind (55 MW) and Rosamond South I Solar plus Storage (257 MW) projects. Clearway Energy also entered into resource adequacy supply agreements for Walnut Creek and Marsh Landing.
Clearway Energy expects to achieve its 2024 financial targets and continues to project dividend growth in the upper 5% to 8% range through 2026 without the need for external capital.
Analyst Expectations
Based on 7 Wall Street analysts who have offered 12-month price targets for Clearway Energy over the past 3 months. The average target price is $31.00 with a high forecast of $37.00 and a low forecast of $26.00.
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