Energy

1 Massive Dividend Stock To Buy At a Steep Discount

Joel South

Published: October 20, 2023 12:56 pm

Sure, the current interest rate environment has taken its toll on high dividend paying stocks. Investors can find alternative investments that offer more yield, and even more important, high yield dividend payers have to borrow cash at much higher rates to fund new investments in order to keep paying and increasing dividend payouts. 

But savvy investors can start looking in the discount bin to find decent businesses that can support a high dividend payout now and have capital gains if and when interest rates stabilize or decrease. 

Is now the Time to buy NextEra Energy Partners (NYSE:NEP) after dropping 75% 

NextEra Energy Partners has not had a pleasant past year, down 75% since its 52-week high. The Limited Partner of NextEra Energy which is heavy on renewable energy projects and natural gas infrastructure should have a pretty nice tailwind as clean energy is becoming a greater piece of energy generation companies portfolios. 

But higher borrowing costs are forcing NextEra Energy Partners to review its long term growth prospects to reduce current financial needs. Essentially, management is transitioning properties to strengthen the company to deliver long-term value to its unitholders (the equivalent of shareholders). 

All this forced NextEra Energy Partners to significantly reduce a pretty ambitious plan to distribute a 12% to 15% yield through 2026 to a much more modest 6% target. 

However, after taking a massive hit and the price of NextEra Partners dropped from $80 to the current $22, investors buying at today’s price are still looking at a 15% yield. 

Lower share price means great yield with a quality business 

The massive sell-off of NextEra Partners has created a super high-yield opportunity for investors. Better yet, management has already taken the financial measures to secure the long-term outlook of the company but you can still walk away with a 15% dividend (Master Limited Partnerships or MLPs call them distributions) and an investment with capital gains upside.