NextEra Energy Partners(NYSE: NEP) stock gained solid momentum in May, but the euphoria only lasted so long. The renewable energy stock slumped 18% in June, according to data provided by S&P Global Market Intelligence, wiping out all of its gains through May and some. As of this writing, shares of NextEra Energy Partners are now down 13% this year amid fears of a dividend cut.
Analyst downgrades hit the renewable energy stock
NextEra Energy Partners stock plunged in 2023 after the company blamed funding constraints amid high interest rates and slashed its dividend growth goal through 2026 by almost half to 5% to 8% per year with an annual target of 6%. Last month though, NextEra Energy Partners reaffirmed its dividend growth target, but investors and analysts are skeptical.
Barclays analyst Christine Cho cut NextEra Energy Partners stock's price target to $25 a share from $32 per share in June in light of the company's upcoming debt maturities. If NextEra Energy Partners cannot raise more funds, Cho fears it may have to cut its dividend by as much as 45% to 75% to repay debt worth $3.7 billion maturing between 2026 and 2032.
RBC Capital is the latest to ring the warning bells on NextEra Energy Partners, with analyst Shelby Tucker cutting the stock's price target to $30 per share from $38 a share. Tucker, too, is concerned about the renewable energy giant's upcoming debt repayments and expects the company's cash flows from wind repowerings to fall short. For those in the know, NextEra Energy Partners plans to repower its wind assets to boost cash flows in the coming years.
With several analysts warning about a potential dividend cut, investors have been quick to dump NextEra Energy Partners stock in recent weeks.
What should you do with NextEra Energy Partners stock now?
In its 2023 annual report, NextEra Energy Partners revealed that it had a "minimum" of $1.3 billion, $700 million, and around $2 billion in long-term debt maturing annually in 2024, 2025, and 2026, respectively. That's nearly $4 billion of debt repayment coming up in less than two years even as the company had cash and cash equivalents worth only $245 million as of March 31.
If these numbers are anything to go by, fears about NextEra Energy Partners' dividend growth aren't entirely unfounded. The company's projected dividend payout ratio of mid-90% through 2026 also leaves no room for error. However, with the stock's dividend yield hitting 13%, the worst may already be baked into the stock's price. The upside, though, could still be limited as investors tread with caution in the medium term.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.
