NextEra Energy Partners (NYSE: NEP) stock price has been in a strong recovery this year as investors bought the dip. After bottoming at $18.6 in December last year, it has soared to $30 and is now hovering near its highest point since September 25th.
Still, these gains have not been enough to compensate for the losses made in the past two years. The stock remains about 60% below its highest point in 2022, a move that has erased its market cap from over $7.45 billion to about $2.8 billion.
Is the yield too good to be true?NextEra Energy Partners is a company mostly owned by NextEra Energy, the biggest utility in the United States. Established in 2014, the company invests and holds renewable energy projects in industries like wind, solar, battery storage, and natural gas pipelines in the US.
On paper, NextEra Energy Partners should be a good investment as governments focus on energy transition from coal and other fossil fuels. In the US, Biden is implementing energy projects worth trillions through his Inflation Reduction Act (IRA) and the bipartisan infrastructure deal.
In reality, however, the renewable energy industry is facing substantial challenges partly because of high interest rates. In April, New York state shuttered three wind farm projects. And last year, Siemens Energy abandoned a big wind project in New Jersey.
At the same time, most solar stocks like Sunrun, Maxeon Solar Technology, and SunPower have all dropped by double-digits.
These challenges, and the ongoing fears that Next Era Energy Partners will slash its dividend explain why the stock has been in a freefall in the past two years. This drop has led to a sharp increase in its dividend yield.
Data shows that the company is now yielding about 11.88%, higher than most companies. For example, popular dividend companies like Energy Transfer, Enterprise Products Partners, and Realty Income are yielding 7.3%, 7.5%, and 5.6%, respectively.
A high dividend yield always sounds good. In NEP’s case, a $10,000 investment would give you a gross income of about $1,188 a year or about $100 per month. What you get in dividends is lost in its stock performance, which explains why NEP’s total return has not been a great performer.
Data shows that its total return in the past five years stood at minus 11.4% while the S&P 500 had 80%. The lower-yielding NextEra Energy (NYSE: NEE), its general partner, has returned 74% in the same period.
NEE vs NEP vs S&P 500
This trend happened in the past 12 months as NEP yielded minus 45% against NEE’s -1.25% and the S&P 25%. As such, in an an i
NextEra Energy Partners stock forecast
Turning to the weekly chart, we see that the NEP share price has risen modestly this year. However, a closer look shows that it has remained below the 50-week and 100-week Exponential Moving Averages (EMA).
The stock has also formed a rising wedge pattern, which is nearing its confluence zone. This is one of the most bearish signs. It has also formed a bearish flag pattern, which is usually a negative sign.
Therefore, while the stock has one of the highest yields in Wall Street, we can’t rule out a situation where it retreats sharply in the coming months. If this happens, the stock will drop to about $20.
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