NextEra Energy Partners (NYSE: NEP) experienced a sharp decline in its stock price on Monday, dropping by 8.7% in today’s trading session. The renewable energy-focused master limited partnership (MLP) saw its shares fall following a downgrade from a Wall Street analyst and concerns about a potential cut to its dividend.
RBC Capital analyst Shelby Tucker downgraded NextEra Partners from outperform to market perform, revising the price target from $38 to $30. Tucker cited challenges in finding lower-cost wind repowering opportunities to support NextEra’s target earnings growth of 5% to 8%. Additionally, the company faces pressure to manage upcoming convertible equity portfolio financing (CEPF) maturities totaling $3.7 billion after 2026.
While NextEra has options to address its financing obligations, the higher cost of capital compared to when the CEPFs were issued may necessitate a dividend cut. Tucker suggested a potential 50% reduction in the distribution, which could help the company manage its debt obligations without resorting to expensive refinancing or equity issuance.
Investors should be cautious when investing in MLPs like NextEra Energy Partners that offer high dividends, as economic uncertainties or interest rate fluctuations can impact their ability to raise capital through stock issuance. This can lead to dilution or dividend cuts, as seen in the case of NEP.
Before considering an investment in NextEra Energy Partners, investors should weigh the risks and potential rewards. It’s important to note that the Motley Fool Stock Advisor team did not include NEP in their list of top stock picks, emphasizing the importance of thorough research and due diligence when making investment decisions.
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