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Great ‘buy the dip’ opportunity for this high dividend stock

Great ‘buy the dip' opportunity for this high dividend stock
Elmaz Sabovic

In recent years, NextEra Energy Partners (NYSE: NEP) has faced significant setbacks, with its stock plummeting almost 70% from its peak in early 2022.

This decline has been influenced largely by increasing interest rates, leading to a dividend yield of approximately 13%.

NEP stock 1-year price chart. Source: Google Finance
NEP stock 1-year price chart. Source: Google Finance

However, NextEra Energy Partners has taken significant steps to steer itself toward profitability, giving investors an ideal opportunity to ‘buy the dip.’

Rethinking strategy will pay out in the long term for NEP stock

NextEra Energy Partners has faced challenges due to higher interest rates, affecting its growth potential by increasing borrowing costs. To counter this, the company has adjusted its strategy. 

Firstly, it decided to sell its gas pipeline assets to focus solely on renewable energy. The proceeds will be used to complete planned buyouts of convertible equity portfolio financing (CEPFs) by 2025. Secondly, it revised its dividend growth target to a more conservative rate, aiming for 6% growth per year. 

This will be achieved through self-funded organic growth, primarily wind repowering projects. Despite these changes, NextEra Energy Partners has made progress by selling its STX Midstream business for over $1.8 billion. 

NextEra Energy strategy for profit. Source: NextEra Energy
NextEra Energy strategy for profit. Source: NextEra Energy

Great potential in the future for NEE and NEP stocks

NextEra Energy Partners is implementing a turnaround strategy to reduce its cost of capital, critical for its future success as a funding vehicle for NextEra Energy’s (NYSE: NEE) renewable energy projects.

Both companies are well-positioned for long-term growth, given the strong demand for renewables. Forecasts indicate robust renewable energy and storage demand growth, creating significant expansion opportunities. 

As NextEra Energy Partners buys out its remaining financing agreements and potentially benefits from lower interest rates, it could alleviate pressure on its balance sheet and decrease borrowing costs, leading to increases in NEP and NEE stock prices and improved financial flexibility.

Additionally, the company has organic growth potential, including opportunities to repower existing wind farms and integrate battery storage. Rising demand for renewable energy could drive higher power prices and new agreements.

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