Why NextEra Energy Partners Shares Dropped 18% in June

NextEra Energy Partners (Germany) -1.05%) stocks gained solid momentum in May, but the euphoria only lasted so long. Renewable energy stocks fell 18% in June, according to data from S&P Global Market Intelligence, wiping out all of the gains from May and some months. As of this writing, shares of NextEra Energy Partners are down 13% this year amid worries about a dividend cut.

Analyst ratings downgrades hit renewable energy stocks

NextEra Energy Partners shares fell sharply in 2023 after the company blamed funding constraints on high interest rates and cut its dividend growth target by nearly half through 2026 to 5% to 8% annually, with an annual target of 6%. But NextEra Energy Partners last month reaffirmed its dividend growth target, but investors and analysts are skeptical.

Barclays Analyst Christine Cho lowered her target price on NextEra Energy Partners stock from $32 to $25 a share in June in light of the company’s upcoming debt maturities. If NextEra Energy Partners is unable to raise more funds, Cho fears it may have to cut its dividend by as much as 45% to 75% to pay down $3.7 billion in debt maturing between 2026 and 2032.

RBC Capital is the latest firm to sound the alarm about NextEra Energy Partners, with analyst Shelby Tucker lowering his price target on the stock from $38 to $30 per share. Tucker is also concerned about the renewable energy giant’s upcoming debt payments and expects the company’s cash flow from wind repowering to be lower. For those in the know, NextEra Energy Partners plans to repower its wind assets to boost cash flow in the coming years.

Investors have been selling off NextEra Energy Partners shares rapidly in recent weeks as many analysts warned of a potential dividend cut.

What should you do with NextEra Energy Partners stock now?

In its 2023 annual report, NextEra Energy Partners disclosed that it has a “minimum” $1.3 billion, $700 million and about $2 billion in long-term debt that matures annually in 2024, 2025 and 2026. That’s nearly $4 billion in debt repayments in less than two years, even though the company had cash and cash equivalents of just $245 million as of March 31.

If these numbers are anything to go by, then concerns about NextEra Energy Partners’ dividend growth aren’t entirely unfounded. The company’s projected 90% dividend payout ratio through 2026 also leaves little room for error. However, given that the stock’s dividend yield has hit 13%, the worst may already be priced into the stock. However, growth could still be limited as investors remain cautious in the medium term.