NextEra Energy Partner (New European Commission) 2.93%) currently offers a huge dividend yield. The renewable energy company’s payout is more than 14%which is about 10 times higher than the S&P500‘S Dividend yield. In addition, the company plans to further increase its payout in the future.

But as attractive as this is Dividend stock for renewable energies may seem that those who are looking for a sustainable source of income should forget it now. Instead, income-oriented investors should buy Renewable Energy from Brookfield (BEPC 3.54%) (BEP 4.28%)Although it offers a lower return (over 5%), it is based on a much more sustainable foundation.

The battery is almost empty

NextEra Energy Partners currently has an excellent dividend payout ratio. renewable energy The producer has increased its payout every quarter since its IPO over a decade ago.

NEP dividend data from YCharts

The company expects this steady upward trend to continue and plans to increase its payment by 5 to 8 percent. per year by 2026, with a target of 6% annually. While this is a much slower pace than originally expected (12% to 15% annually), it is a solid rate, especially for such a high dividend stock.

NextEra Energy Partners had to postpone its growth plans due to rising Costs for Capital city. Rising interest rates and falling share prices have made it too expensive to borrow money to refinance expiring debt and finance new acquisitions on attractive terms. Garbage-rated loans. This forced the company to change its strategy. It is selling its natural gas pipeline operations to cover upcoming financing acquisitions. It is also relying on organic expansion projects (primarily wind power revival projects) to increase its cash flow and support its dividend growth plan.

The company expects that its Dividend payout ratio will be in the mid-90% range by 2026, which is far too high. For this reason, there is a high risk that the company will have to cut its dividend in the coming yearsThis makes it too risky for income-oriented investors at present.

Enough strength for further growth

Brookfield Renewable’s financial profile is on a much more sustainable footing nowadaysUnlike NextEra Energy Partners, Brookfield Renewable a strong investment grade Credit-worthiness. The company has now does not rely on short-term financing to finance acquisitions. The primary means of doing this are equity and low-cost, long-term, fixed-interest debt. For this reason, higher interest rates had an impact on its growth strategy.

Instead of hitting the brakes, Brookfield Renewable has stepped on the accelerator. The company expects to Funds from operating activities (FFO) per share at an annual rate of over 10% through at least 2028. The Company expects its growth to be driven by several factors, including inflation-indexed contractual price increases, margin improvement activities, its development pipeline and acquisitions.

While NextEra Energy Partners has relied primarily on on acquisitions to promote growth (mainly spin-offs of the parent company, NextEra Energy), Brookfield focuses on higher-return organic development projects. The company has a huge backlog that should fuel its growth for years to come Come.

The company now pursues a completely different strategy for financing acquisitions: Capital recyclingBrookfield regularly sells delinquent assets to fund new investments with higher returns. For example, the company expects to generate $1.3 billion from capital recycling activities this year, which will help it fund the $970 million it has committed to investing in several accretive acquisitions.

Brookfield expects its growing cash flows to support annual dividend growth of 5% to 9%, consistent with its expected organic growth rate of 6% to 9%. This would continue a trend of increasing the payout by at least 5% annually, which the company has achieved for 13 consecutive years. With earnings growing faster than the dividend, Brookfield’s payout ratio will steadily decline from its already comfortable level of under 75%.

A much more sustainable source of income

NextEra Energy Partners’ double-digit dividend yield might seem tempting. But this payout is not On a solid foundation nowadays due to its weak financial profile. For this reason, income-oriented investors should forget about it until the company resolves its problems.

You should buy Brookfield Renewable instead. The company has a long history of increasing its high-yield payout, and this trend should continue. It supports its dividend with a much stronger financial profile and clearly visible Growth prospects. This provides a much more sustainable income stream that should steadily increase in the future.