Investing a grand? Contemplate these 3 remarkable energy stocks to purchase immediately.
The energy sector has reached a significant turning point. Although it was previously shifting towards cleaner energy sources in response to the potential worsening effects of climate change, demand for electricity is now anticipated to escalate in the coming years. This surge will be driven by the electrification of transportation, increased digitalization, and the insatiable power needs of artificial intelligence (AI) data centers.
Given this projected increase in demand, several energy stocks currently appear to be worth considering. Brookfield Renewable, Clearway Energy, and NextEra Energy have caught the attention of several Fool.com contributors as the top picks for investors with $1,000 to allocate. Here's why they value these stocks above others.
Brookfield Renewable continues to seize opportunities
Reuben Gregg Brewer (Brookfield Renewable) remarks that an unusual combination of trends has emerged in Brookfield Renewable's portfolio. On the one hand, the company is selling assets it considers to be strategically advantageous. On the other hand, it is utilizing the funds obtained from these sales to acquire investments that it finds to be attractively priced. The peculiarity here lies in the fact that both the assets and investments are in the same sector: clean energy.
This dichotomy may seem strange, but it is actually an extension of Brookfield Renewable's long-standing opportunistic approach. As financially robust businesses continue to thrive in this sector, Brookfield is profiting from selling well-capitalized and cash-generating clean energy ventures and purchasing those with weaker financial profiles.
Upon acquiring these ventures, Brookfield leverages its investment-grade credit rating balance sheet to bolster troubled businesses. It also focuses on improving operational efficiency based on its rich history of success in the clean energy industry.
Brookfield Renewable's strategy is straightforward: it is capitalizing on its business strengths. This approach is leading to outstanding performance for investors, with funds from operations (FFO) rising by 11% year over year in the third quarter of 2024. Long-term investors can capture yields as high as 5.6% by investing in Brookfield Renewable and benefiting from its opportunistic exposure to the expanding clean energy industry.
Expanding its growth horizons
Matt DiLallo (Clearway Energy) highlights the impressive moves made by this clean energy infrastructure company a few years ago. Clearway Energy sold its thermal assets to private equity giant KKR for over $1.3 billion in net proceeds. Since then, it has been reinvesting these funds in higher-yielding renewable energy projects.
Clearway Energy has committed to allocating all the proceeds from its asset sale to projects that will close within the coming quarters, providing it with significant visibility into its growth trajectory over the next few years. Clearway anticipates generating approximately $2.08 per share in cash flow available for distribution (CAFD) in 2025.
This performance should facilitate dividend growth at the top end of its 5% to 8% annual target range. Clearway also expects CAFD per share to increase by 7.5% to 12.5% in 2026 as its secured investment portfolio reaches full development. This growth should facilitate a 6.5% dividend hike in 2026.
An additional attraction of Clearway Energy is its long-term growth potential. The company can support its growth in the mid- to high-single-digit range by retaining cash after distributing dividends and maintaining a solid balance sheet. With the increasing demand for renewable energy infrastructure, investment opportunities abound.
Currently, Clearway Energy pays a dividend of 6%, implying that a $1,000 investment could yield $60 in dividend income annually (and growing). Adding its mid- to high-single-digit earnings growth to this dividend income, Clearway Energy has the potential to deliver double-digit total annual returns over the coming years.
A stock with promising long-term growth potential
Neha Chamaria (NextEra Energy) emphasizes that the U.S. Department of Energy (DOE) projects that demand for electricity will surge by 15% to 20% over the next decade. The DOE also predicts that clean energy resources will satisfy this increasing power demand. One company that is well-positioned to capitalize on these trends is NextEra Energy.
Not just the largest utility in the U.S., but also the world's largest producer of wind and solar energies and a leader in battery storage, NextEra Energy is poised to benefit from the surging power demand and clean energy growth. The company has already outlined plans to allocate nearly $100 billion towards investments in this expanding sector between 2024 and 2027.
These investments are expected to nearly double the company's renewables and storage capacity by 2027. Management anticipates adjusted earnings per share (EPS) to grow by 6% to 8% through 2027 and dividend per share to expand by nearly 10% through 2026.
Over the last few decades, NextEra Energy have delivered impressive returns to their shareholders. They've managed to increase their adjusted Earnings Per Share (EPS) and dividends by approximately 8.9% and 10% respectively, from 2003 up until 2023. This steady growth has benefitted shareholders, and I predict this positive trend will persist in the future.
In light of the projected demand increase for clean energy sources, some analysts are recommending investments in energy stocks. For instance, Reuben Gregg Brewer values Brookfield Renewable due to its opportunistic approach, where it sells well-performing clean energy ventures to reinvest in attractively priced ones within the same sector, resulting in robust financial performance and high yields for investors.
To capitalize on the rising demand for renewable energy infrastructure, Matt DiLallo suggests Clearway Energy as an investment opportunity. The company has reinvested the funds from selling thermal assets to private equity giant KKR into higher-yielding renewable projects, anticipating significant cash flow and dividend growth over the next few years, making it a promising choice for long-term investments.
