NextEra Energy Partners (NEP) was a dividend growth superstar for almost a decade. The company increased its dividend every quarter by 3% to 4%, giving 15% annual dividend growth. The average yield of 4% or so put NEP’s yearly compound total returns in the very high teens. However, the way NEP structured the debt it issued to fund its growth eventually put the company in a pickle.

With the 2023 second-quarter earnings report, NEP cut its dividend growth rate from 15% per year to 6%, causing the share price to tank by 50%. Although the company just slowed the dividend growth rate, the damage was done: a lot of investors read the news as a dividend cut and sold off the stock.

This is when the problems started for NEP. Much of the company’s debt is convertible into common shares. Converting to shares with a 4% yield works fine, but converting to shares yielding 15% doesn’t financially work. NextEra started looking for solutions.

Over the past year, they sold some midstream assets and refinanced some debt. For most of the last year, NEP traded between $25 and $30 per share.

The 2024 second-quarter results, announced on October 23, showed terrible results, including a big loss. However, the company did stick to its current dividend plan, announcing a 1.4% increase for the dividend to be paid on November 14. The good news about the dividend was not enough to keep NEP from crashing again, and the shares now trade for less than $20.

During the earnings conference call, NextEra dropped a bombshell, stating, “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.”

Historically, the company has reiterated its dividend expectations, with a 6% growth over the last year. It seems everything is on the table, and I think they will cut the dividend early next year.

The question now is what happens to the dividend and what happens to the share price. NEP currently yields 19%, so cutting the dividend by 50% would leave a near 10% yield. Assuming the stock price doesn’t crash again, the most crucial factor will be what they project for future dividend growth. NEP will be a fascinating watch in February.