Forget NextEra Energy Partners: Buy this ultra-high yielding top stock instead

NextEra Energy Partners (NEP 2.93%) currently offers a monster dividend yield. Renewable energy company payment brings more than 14%which is about 10 times greater than S&P 500his dividend yield. Additionally, the company plans to further increase its payout in the future.

However, as attractive as this renewable energy dividend stock it might seem, those looking for a sustainable income stream should forget about it right now. Instead, income-focused investors should buy Brookfield Renewables (BEPC 3.54%) (BEP 4.28%). Although it offers a lower yield (over 5%), it is on a much more sustainable basis.

Low power

NextEra Energy Partners currently has an outstanding record of paying dividends. The renewable energy the maker has increased its payout every quarter since it went public more than a decade ago.

NEP Dividend Data by YCharts

The company expects this steady upward trend to continue. Plans to increase pay by 5% to 8% per year until 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 high yielding dividend stocks.

NextEra Energy Partners had to put the brakes on its growth plans because of its growth the cost of capital. Rising interest rates and falling stock prices have made it too expensive to borrow money to refinance maturing funds and finance new acquisitions at attractive rates because garbage– assessed credit. This forced the company to pivot is strategy. It is selling its natural gas pipeline operations to fund future acquisitions. It is also relying on organic expansion projects (primarily wind repowering projects) to boost its cash flow in support of its dividend growth plan.

The company expects to dividend payout ratio it will be in the mid-90% range by 2026, which is way too high. Because of this, there is a high risk that the company will have to reduce its payments in the coming years. That makes it too risky for investors looking for income right now.

Big power to keep growing

Brookfield Renewable’s financial profile is on a much more sustainable footing these days. Unlike NextEra Energy Partners, Brookfield Renewable has a strong investment grade credit rating. Meanwhile, the company not based on short-term financing to finance acquisitions. It primarily uses equity and low-cost, long-term, fixed-rate debt. Because of this, higher interest rates did not had any impact on its growth strategy.

Instead of hitting the brakes, Brookfield Renewable hit the gas. The company expects to grow its funds from operations (FFO) per share at an annualized rate of more than 10% through at least 2028. It sees several factors driving its growth, including inflation-linked contract rate increases, margin improvement activities, development pipeline and acquisitions.

While NextEra Energy Partners was primarily based on acquisitions to fuel its growth (mainly drop-down deals from the parent company, NextEra Energy), Brookfield focuses on higher yielding organic development projects. The company has a massive backlog of projects that should fuel its growth for years to come.

Meanwhile, the company has a much different strategy for financing acquisitions: capital recycling. Brookfield typically sells mature assets to fund new, higher-yielding investments. For example, the company expects to generate $1.3 billion from capital recycling activities this year, which will help fund the $970 million it has committed to invest in several incremental acquisitions.

Brookfield expects its growing cash flows to support annual dividend growth of 5% to 9%, which is in line with its expected organic growth rate of 6% to 9%. This would continue his trend of increasing his pay by at least 5% per year, which he has done for 13 consecutive years. Meanwhile, with earnings growing faster than its dividend, Brookfield’s payout ratio will steadily decline from its already comfortable level below 75%.

A much more sustainable income stream

NextEra Energy Partners’ double-digit dividend yield it might seem alluring. However, that payment it is not on a solid foundation these days due to its weak financial profile. Because of this, income-focused investors should forget about it until the company fixes its problems.

They should buy Brookfield Renewable instead. The company has a long history of high-yielding payout growth that should continue. It supports its dividend with a much stronger financial profile and very visible growth prospects. Because of this, it provides a much more sustainable income stream that should grow steadily in the future.