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Virus-Proof And Rate-Proof Clearway Energy Is A Top Buy In This Market

Mar. 02, 2020 11:01 PM ETClearway Energy, Inc. (CWEN), CWEN.AAY, NEP, TERP16 Comments
Robbert Manders profile picture
Robbert Manders


  • The stock lost 8% last week while nothing virus-related can hurt its earnings power or dividend.
  • The company's earnings lagged, which was compensated with a positive outlook for 2020.
  • A great feature of CWEN compared to peers is how fast it pays off its debt.
  • The debt repayments depress its dividend now, but create a massive springboard for future dividend growth.
  • The PG&E situation continues to look favorable and the company also expects to raise the dividend to normal levels later this year.

Last week has seen the worst broad market sell-off in our recent memory. Across the board, investors saw equity decline. Rates have also gone down sharply in anticipation of the Fed’s response to a global economic slowdown.

Though it is uncertain how sentiment will affect the global economy, it is certain that the global economy will see some effects from the virus. Renewable energy producers can be great medium-term play in that environment as their variability is mainly driven by weather instead of demand. Meanwhile, the WSJ reported that bets on interest rate cuts escalate, which is always favourable for interest rate-exposed sectors like utilities.

I see Clearway Energy (NYSE:CWEN) (NYSE:CWEN.A) as the best stock among the high-dividend renewable energy stocks, called 'YieldCos'. It is cheaper than its peers, but is underappreciated because it does the opposite of some of them: Clearway set its dividend very low while some peers pay out more than they make, which has boosted the stock prices of these peers. As discussed in some previous articles, I fully continue to expect the dividend to be raised this year and think that this will be a major catalyst for the stock.

Because of the dynamic discussed above, I found it surprising that CWEN went down by 8% last week and consider this to be a great buying opportunity.

Clearway Energy business model

In a nutshell, Clearway Energy produces (renewable) energy and sells this energy through long-term contracts called power purchase agreements (PPAs) to off-takers which are mostly utilities. This has little to do with people working less, low economic growth, avoiding public areas or anything of the sort so great in an environment full of virus fears.

Fundamentally, Clearway Energy is better off with low rates and it feels practically no impact from electricity demand as prices

This article was written by

Robbert Manders profile picture
Currently work at a HF so won't be actively contributing in the near future. Besides being a fundamental value investor, I have a master's degree in Finance, have been investing myself for over 10 years, and have equity analyst experience at a top Dutch buy-side institution. I live in the Netherlands and will share my European perspective on stocks worldwide.

Analyst’s Disclosure: I am/we are long CWEN.A. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am short NEP

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (16)

How is comprable CAFD computed / what is it in the above table?
Robbert Manders profile picture
I took the reported CAFD and made this significant adjustment: "To make the CAFD figures comparable, I recalculated CAFD (this is 'comparable CAFD') with the assumption that 5% (2019) or 5.5% (run rate) of the respective company’s net debt has to be repaid each year."
The top table is for 2019, the one below contains run-rate figures.
Excellent article Robbert, thanks. You are doing the best work on the YieldCos in my opinion. Question: if the final PG&E ruling goes against Clearway this summer, how quickly would you then expect the company to then raise the dividend annually?
Robbert Manders profile picture
Thanks. I expect the dividend raise to be very quick. At least I interpret management comments as such. I also think we should see at least $0.30 quarterly in that case. We can see that dividend in about 6 months I think.
Shepferg2 profile picture
Thanks. Very helpful!

I just put in an order for CWEN.A. Also bought some AY. Looking to load up on renewables. I'm expecting a renewables explosion in the next decade. Made great money on PEGI, but miss it. It was a terrific steady income growth stock.
I'm not surprised CWEN dropped 8% last week. Most things, whether defensive in nature or not, dropped hard. Utility related CEFs like UTG dropped significantly too. I guess in a prolonged recession these defensive stocks would hold up better in the long run. But one commenter in an article I looked at last week mentioned that in a correction like the one we just had, all stocks have a Beta of 1. I still like CWEN though.
I'm new to Clearway. Would anyone care to humor me with a two-sentence explanation of the difference between the class A and class C shares?
Robbert Manders profile picture
Class A shares have 100x the voting power. However those votes are useless as Clearway Energy Group has the majority of voting rights. The A-shares are less liquid because there are more C-shares outstanding so this is why there is a spread. If the spread is wide and you're a retail investor with a long-term view, you're probably best off with the A-shares.
@Robbert Manders

I never noticed CWEN.A before. It currently has a lower price than CWEN and a slightly higher dividend yield. So, am I correct in thinking that CWEN.A is currently the better deal?
Robbert Manders profile picture
In the sense that they are economically equivalent to C-shares but cheaper - yes they are. I own the A-shares for that reason.
Growtheport profile picture
Still holding AY but considering a move after the next dividend payout. Didn't raise the dividend for the first time since I've owned it.
Growtheport profile picture
Well, should have made that move. Hard to believe it's hit double digit plus when I can't for the life of me understand how COVID19 would impact long term energy contracts.

Nutty. But I've got cash.
Robbert Manders profile picture
You should probably have sold AY when it crossed 30.
I think it's getting nice and cheap again, though. I'd buy at this price if I wasn't buying CWEN already. It was at 17 this morning.
Scooter-Pop profile picture
Agree Clearway is a hold at the very least.
Thanks for the article
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