Shares of NextEra Energy Partners (NYSE: NEP) came under a ton of pressure last September when the company said it would slow its annual distribution growth from an expected 12% to 15% per year to around 6%.Skeptics, including many Wall Street analysts, started yelping that the company was going to cut its distribution. (A distribution is essentially the same as a dividend – just with different tax ramifications.)It’s been about a year, and so far, no cut.Because the stock dropped so dramatically, this partnership now yields double digits. Let’s see whether investors have reason to be worried.The measure of cash flow that we use for NextEra Energy Partners is cash available for distribution, or CAFD. After a big fall from $584 million in 2021 to $364 million in 2022, NextEra’s CAFD is on the rise again. It grew 89% last year to $689 million and is expected to reach $712 million in 2024.Last year, NextEra Energy Partners paid $741 million in distributions, or nearly $1.08 for every $1 in CAFD. We never want to see a company paying out more to shareholders than it’s generating in cash flow.This year, the payout ratio will be even worse. The company is forecast to pay out $811 million in distributions for a payout ratio of 114% (or $1.14 in distributions for every $1 in cash flow).So that’s not good.What is good, however, is NextEra’s track record of raising its distribution.The company has done so every quarter since 2015.
The most recent distribution in August was $0.905 per share, which translates to a 13.5% annual yield. But again, the distribution is growing every quarter, so that yield will likely keep rising.The positives for NextEra’s distribution are that cash flow is increasing and the company has a stellar track record of raising its payouts to investors, along with a stated commitment to continuing to boost the distribution.However, the negative is that the payout ratio is too high.I don’t believe a cut is imminent, but I’d feel a lot better about the distribution if NextEra got that payout ratio under control. We’ll also want to keep a close eye on CAFD. If it doesn’t grow as much as expected, that would put more pressure on the distribution.NextEra Energy Partners’ distribution is fairly safe, but we’re watching this one to make sure it stays that way.

Dividend Safety Rating: B
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