Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A) offers investors a high-yielding dividend currently approaching 6%. That's multiples higher than the S&P 500's (SNPINDEX: ^GSPC) dividend yield, which is near a 20-year low at around 1.2%.
The clean energy company has all the power needed to grow its dividend toward the upper end of its 5% to 8% annual target range through 2026. Because of that, it's working to lock in dividend growth within that range for 2027 and beyond. It recently secured some new investments aimed to help power its next phase of dividend growth.
A fully powered plan through 2026
Clearway Energy is executing a multiyear investment plan to grow its dividend in the upper end of its 5% to 8% annual target range through 2026. The company jump-started that strategy in 2022 when it cashed in on the value of its thermal assets, selling them to private equity giant KKR in a deal that brought in nearly $1.4 billion in net proceeds. It has been recycling that capital into higher-returning renewable energy investments.
The company has secured deals to put those proceeds to work in transactions that will close through 2026. That gives it the line of sight to grow its cash available for distribution (CAFD) to around $2.08 per share in 2025 and by 7.5% to 12.5% off that base in 2026.
That should support dividend growth of 6.8% next year and 6.5% in 2026. It expects to deliver that growth while keeping its dividend payout ratio in the 80% to 85% range. That level will give it some cushion while allowing it to retain cash to fund new investments.
Starting to recharge for 2027 and beyond
Clearway Energy has been working to enhance and extend its growth visibility beyond 2026. It has been laying the foundation by signing contracts to sell power produced by its natural gas generation facilities at higher prices. It has already sold 93% of its capacity for 2026 and 63% for 2027, giving it more visibility into its future cash flows.
In addition, the company recently committed to invest $155 million into the Pine Forest solar plus storage project, which it expects to close in the second half of next year. The investment should generate $16 million in annual CAFD starting in 2026. That incremental cash flow will help support dividend growth in 2027.
Meanwhile, Clearway also recently agreed to buy the operational Tuolumne Wind Project. It expects to invest $70 million to $75 million in an asset that should add $9 million to its annual CAFD beginning in 2026. In commenting on the deal, CEO Craig Cornelius stated, "This acquisition is the next step in our path to meeting our long-term financial objectives, including our goal to deliver the midpoint or better of $2.40 to $2.60 in CAFD per share in 2027."
That target range implies 5% to 8% CAFD per share growth, which Clearway set as its new long-term target. The company also plans to grow its dividend toward the bottom half of its 5% to 8% annual target range in 2027 and beyond. That will allow it to maintain an even more conservative dividend payout ratio in the range of 70% to 80%.
Clearway is working toward securing additional investments to support its growth beyond 2026. For example, it's evaluating an offer to invest in the Honeycomb Phase 1 project that will reach commercial operation in 2026. It could invest about $85 million into this portfolio of storage hybridization projects. It has a close relationship with the developer, which has many other projects in its pipeline that the company could acquire in the future.
A powerful income stream
Clearway Energy offers investors a very lucrative dividend. The company expects to grow that payout toward the upper end of its 5% to 8% annual target range through 2026. It has already started working on its next growth phase, which should give it the power to deliver dividend growth at the low end of its target range in 2027. That increasingly visible dividend growth makes Clearway a very compelling income investment opportunity these days.
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Matt DiLallo has positions in Clearway Energy and KKR. The Motley Fool has positions in and recommends KKR. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
