With a current yield near 20%, investors are wondering whether NextEra Energy Partners (NEP) is a high-yield deal, or a dividend cut trap. Let’s look at what brought us here and make some guesses about NEP’s future.

From its IPO a decade ago until September last year, NEP was a dividend growth investor’s dream stock. The yield ranged from 4% to 6%, and the dividend increased every quarter at a 15% annual growth rate.

In September 2023, Next Era Energy (NEE), which controls NEP, announced they needed to reduce the dividend growth rate to 6% per year. I think a lot of investors read the news as a dividend cut, which it was not, but that didn’t stop investors from selling the stock and NEP quickly dropped by 55% to around $22.00.

In the high-yield stock world, it’s very hard for the share price to recover once a stock takes a tumble. Loyal shareholders have bailed, and there will not be enough newly interested investors to drive the share price higher.

Over the next six quarters, NEP increased its quarterly dividend by about 1.4%, giving a 6% annual growth rate. With shares yielding 12% to 15%, NEP remained attractive to investors at the current share price.

Then, in October, when it released its third-quarter earnings, management made this statement during the earnings call with Wall Street analysts: “NextEra Energy Partners plans to complete its review by no later than the fourth quarter 2024 call and intends to provide its distribution and run rate cash available for distribution expectations at that time.”

The market read that has a lead-in to actual dividend cuts, and I don’t disagree. The share price dropped from around $25 to below $16.00. NEP shares now trade for around $18.00, down over 60% over the last 15 months.

So, is NEP worth holding or buying? NextEra Energy, the parent company, has an outstanding track record of taking care of investors. I suspect the dividend rate will be reduced to a level where the company can safely pay and grow the dividend. Even a 50% cut in the rate would leave shares yielding 10% based on the current share price.

If you own shares, it won’t hurt to hold on unless you need the tax loss. If you don’t already own NEP, I suggest waiting until January to see what the company announces about future dividend payments.