This Dividend Stock Makes for a Screaming Buy in September -- and You've Probably Never Heard of It Before

Key Points

• Clearway Energy has visible earnings growth through 2027.

• It has many ways to continue growing beyond that year.

• The company should have ample power to continue increasing its high-yielding dividend.

• 10 stocks we like better than Clearway Energy ›

Most investors have probably never heard of Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A). Despite being one of the country's largest clean power producers, Clearway flies under the radar. It doesn't have a consumer-facing business as it sells the electricity it produces under long-term power purchase agreements (PPAs) with utilities and large corporations.

Given that Clearway is a relatively unknown company, most investors are missing out on its attractive dividend (6.4% current yield). That yield has been on the rise due to the continued growth in its payment and the recent decline in Clearway's stock price (it's currently 15% below its 52-week high). With lots of growth ahead, Clearway looks like a screaming buy this month.

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Visible growth through 2027

Clearway Energy cashed in on the value of its thermal infrastructure assets a few years ago, selling them to private equity giant KKR for $1.9 billion. It has been steadily recycling that capital by investing it into higher-returning renewable energy assets. The company has been very disciplined, primarily using the funds to acquire new assets directly from developers as they reach commercial operations.

The company has committed to buy, made offers on, or identified several projects that will start producing power and cash flow over the next couple of years. It has also secured new, higher-rate contracts for some of its gas assets and signed agreements to repower some of its existing wind farms. These deals have given the company a lot of visibility into its growth for the next couple of years.

Clearway Energy currently expects to generate $2.08 per share of cash available for dividends this year. The company sees that number rising to between $2.50 and $2.70 per share by 2027, a more than 20% increase over the next two years.

This growing cash flow supports Clearway's ability to continue increasing its dividend. Its current annualized rate is more than $1.78 per share. It's targeting to grow the payout to around $1.98 per share by 2027, a more than 11% increase from the current level. That will enable the company to provide investors with even more income while retaining additional cash to invest in income-generating renewable energy assets.

Plenty of growth potential beyond 2027

Clearway Energy is already working toward securing growth well beyond 2027. It's pursuing additional wind repowering projects across its portfolio, two of which it could complete by the end of 2027. It's also looking at adding battery storage to existing sites. Additionally, several existing PPAs will expire over the next few years, providing Clearway with opportunities to capitalize on surging power demand to sign new PPAs at higher rates. These catalysts will enable Clearway to grow the cash flows of its existing portfolio.

The company also has a significant opportunity to acquire newly developed renewable energy projects from its parent company, Clearway Energy Group (CEG). CEG has a vast pipeline of development projects. Its late-stage pipeline through 2029 represents over $1.5 billion of investment opportunity. This relationship provides Clearway with a steady stream of new investment opportunities. For example, CEG recently offered Clearway the opportunity to invest in a portfolio of battery storage projects in Colorado and California when they enter commercial service in 2026.

Clearway also has the financial flexibility to buy renewable energy assets from third parties. For example, it bought the operating Catalina Solar project in California during the second quarter for $127 million. Clearway also recently bought Tuolumne Wind for $61 million. The company is already evaluating a potential wind repowering project at Tuolumne.

The company believes it will have the financial capacity to grow its cash available for dividends at a 5% to 8%+ annual rate through 2027 and beyond. That should support dividend growth within that target range.

Income and growth at an attractive price

Clearway Energy offers investors a high-yielding dividend backed by long-term renewable power contracts. The company also has visible growth through 2027 and plenty of power to continue growing in the coming years. With its share price down from the peak, Clearway looks like a compelling investment opportunity this September.

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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.