Shares of renewable energy project owner NextEra Energy Partners (NEP -3.73%) dropped as much as 5.4% in trading on Monday as investors worried that inflation data due this week will cause the Federal Reserve to increase interest rates again.
Inflation data in focus
Tomorrow, the closely watched U.S. Consumer Price Index reading will come out, which is a key input to the Federal Reserve’s decision to increase interest rates or not. High inflation can push the Fed to raise rates, and a 0.4% month-over-month increase in inflation back in September is reason for worry about the upcoming numbers.
For NextEra Energy Partners, the reason interest rates are so important is the company has $2.2 billion in debt coming due before 2026, and the company will likely see interest rates jump dramatically when that happens. This will reduce cash available for distribution and ultimately the dividend, which currently yields 14.3%. So the stock can move wildly based on the ups and downs of interest rates.
Taking the long-term view
Debt costs will certainly be a headwind for NextEra Energy Partners, but management has already said they’re cutting expected dividend increases and lowering costs in order to adjust. The current dividend yield may not remain where it is, but there’s lots of room to reduce the payout and still have a profitable investment for the long term.
I think investors are overlooking the strength in NextEra Energy Partners’ business, and days like this present a buying opportunity for long-term investors.
Travis Hoium has positions in NextEra Energy Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.