Co-authored by Treading Softly.
The Amazon Prime TV show Reacher has become a cultural phenomenon in the United States. Its tale revolves around a military veteran turned transient, voyaging across America, armed with little more than a passport and a toothbrush. Before embracing the vagabond life, he led an investigative unit, and in his civilian wanderings, he serendipitously thwarts large-scale conspiracies, much like a modern-day vigilante.
Like the protagonist, income investors understand the value of dwelling in the market rather than timing it, akin to the protagonist’s serendipitous encounters. One may find themselves making a less-than-ideal entry into a stock, akin to boarding a rollercoaster not meant for the faint of heart. This is a bold stance in the realm of investment – an ongoing commitment despite adverse circumstances, exemplifying steadfastness during market volatility.
It may seem unfortunate to find oneself initiated into NextEra Energy Partners, LP (NYSE:NEP) prematurely, witnessing a swift plunge in stock price six months later, potentially distressing for any investor. Yet, such fluctuations are inherent to the market, like a boxer enduring blows in the ring. The true test lies in the response. In the case of NEP, the decision was to stand firm in our resolve to buy, maintaining the faith. Although the market was rattled by NEP’s revised growth forecast, it remained resolute. We emphasized to our subscribers:
“The bottom line is that a company that can reasonably expect 5-8% dividend growth would be worth entertaining at a starting yield below 7%. With a starting yield of 11%+, it is extremely interesting. The market is right that NEP is worth something less with a growth rate of 6% as opposed to 12%, but we believe the sell-off is much more dramatic than the numbers justify.”
Subsequently, NEP rebounded, increasing its distribution twice, thus reinstating its financial strength and trust. Demonstrating resilience in the face of adversity, NEP’s commitment to bolster its distribution signals a trajectory of growth without the need for further capital procurement. This reaffirmation bears eloquent testimony to the unwavering nature of the investment landscape, where fidelity and belief in potential are crucial components of a long-term strategy.
The Path Forward
NEP’s decision to communicate precise distribution projections, emphasizing transparency and reliability, demonstrates a resolute effort to regain market trust. By providing an unambiguous target figure for future distributions, NEP is pioneering a new narrative of certainty, paving the way for definitive outcomes. This shift from vaguely defined ranges to specific figures infers an element of conviction and decisiveness, which is paramount in re-establishing investor confidence.
Furthermore, NEP’s strategic initiatives underscore its resilience – the identification of 985 MW of repowering opportunities without requiring additional equity capital instills confidence in the company’s capacity to navigate challenges. Despite a tempering of guidance in 2023 due to evolving capital costs, NEP remains steadfast in its pledge to deliver 6% distribution growth without recourse to equity. This underlines NEP’s steadfastness in the face of adversity, showcasing a commitment to fulfill its obligations and regain market trust.
The recent divestment of Texas Pipelines and successful debt refinancing are noteworthy milestones, poised to bolster NEP’s financial position and allay investor apprehensions. The ability to adapt, innovate, and surpass hurdles are indispensable traits in the realm of investment, exemplified aptly through NEP’s resolute pursuit of growth and financial stability.
Quoting Muhammed Ali, “You don’t lose if you get knocked down; you lose if you stay down.” NEP’s story mirrors this sentiment, reflecting a spirit that refuses to yield in the face of adversity, continuing to evolve and fortify its position in the market. The unwavering pursuit of growth, resilience in turbulent times, and the commitment to rekindle investor trust position NEP as an investment replete with potential, despite the tempestuous fluctuations it may encounter.
NEP’s Management Reframes the Road to Recovery
The road to recovery for NEP has unquestionably been an arduous journey, and it’s still riddled with obstacles. However, the company’s management not only has a solid plan in place but is diligently executing it with unwavering determination. The stock price may have taken a dip, but the company’s income is steadily on the rise.
A Humble Admission
NEP’s management found themselves in the unenviable position of eating crow as they were compelled to acknowledge that their original guidance lacked a realistic foundation. Unsurprisingly, investors reacted by driving down the stock’s price, rightfully so. The forward guidance, a crucial parameter for many investors to estimate a stock’s worth and potential future returns, now points to slower growth.
The Long and Winding Road
In the midst of this tumult, management is toiling arduously to not only mend their reputation but also steer the company back on its intended course. Despite the setback, the dividend continues to grow, and the overall outlook remains robust. However, it’s evident that the road to recovery will be a protracted one. While some investors may be inclined to bail out, there are others—myself included—who are opting for the less trodden path of holding on and accruing income during this challenging phase. A lavish reward in the distant future seems probable, but only time will unveil the actual outcome.
A Life Less Ordinary
When contemplating retirement, the majority of us aren’t craving the life of Jack Reacher—embroiled in a battle against criminal conspiracies. However, having the financial means to indulge in pursuits like watching shows is undeniably appealing.
The Significance of Income Investing
Possessing a portfolio that generates income to cover expenses such as an Amazon Prime subscription, utility bills, or insurance premiums is a monumental advantage. Every bill settled by your portfolio alleviates future financial worries. For numerous individuals, an income portfolio covers all expenses and leaves surplus for reinvestment and leisure activities. Achieving this financial stability is the aspiration of countless investors and retirees.
This is the essence of my Income Method—this is the allure of income investing.
