NextEra Energy Partners (NEP) is starting to look like a Canadian labor-sponsored fund. The supplier of renewable energy, formed by NextEra Energy (NEE) sharply cut its expectations. It now sees distribution per unit growth of 5% to 8% annually until at least 2026.
NEP blamed higher interest rates and tighter monetary policy. For the year, it expects adjusted EBITDA of $1.9B to $2.1B. Q3 distribution is $3.47 per unit. In Q4, distribution is $3.52/unit.
NEP is at risk of a take-under from NextEra Energy Partners. NEP was cash flow negative after funding its distribution and capital expenditure. The coverage was insufficient for the distribution.
Management cited higher interest rates for the cut. However, the firm needed easy access to borrowing to fund its deficit. Investors who fail to recognize the unsustainable 12% distribution growth are at risk of losing more money. Chances are high that NEP stock will continue falling. Markets will expect NEE to buy out NEP holders, paid for with the issuance of new NEE shares.
Shareholders may no longer trust management. Just as W.P. Carey (WPC) and Vipshop (VIPS) said their dividends were safe, they were not. Back in July, NextEra Energy Partners issued a distribution growth forecast of 12% to 15% through at least 2026.
Avoid NEP stock at all costs.
