Most countries are aggressively looking to switch power sources due to concerns over climate change. The world is moving from fossil fuels toward renewable energy at an accelerated pace. According to experts, the decarbonization of the world economy will attract $100 trillion worth of investments through 2050, making renewable energy stocks such as NextEra Energy (NYSE: NEE), Brookfield Renewable Partners (NYSE: BEP), and Clearway Energy (NYSE: CWEN) top bets right now.
Right now, renewable energy sources including hydro, wind, and solar account for 25% of the total electricity generated by the power sector. In the past decade, renewables have increased capacity at an annual rate of 8% as corporates look to lower carbon footprint by signing long-term power purchase agreements with renewable energy companies.
One of the largest renewable energy companies in the world, NextEra has returned over 500% to investors in the last 10 years, after adjusting for dividends. Despite its market-thumping gains, NextEra offers investors a tasty dividend yield of 2.2%.
A key catalyst for NextEra’s stellar returns is the company’s above-average earnings growth.
Since 2005, NextEra has increased adjusted earnings at an annual rate of 8.7%. Comparatively, its dividend payout has increased by 9.6% annually in this period. NextEra expects earnings to rise between 6% and 8% through 2023 which suggests dividends should increase going forward as well.
In Q1 of 2022, NextEra’s adjusted earnings stood at $1.5 billion or $0.74 per share, increasing by 10.4% year over year. Its strong performance in the March quarter was driven by NextEra’s Florida-based electric utility business.
In Q1, NextEra completed 450 megawatts of solar energy projects and aims to complete 9.5 gigawatts of solar energy by 2030. The company’s focus on expanding its base of cash-generating assets will allow NextEra to increase earnings by 10% in 2022.
NextEra stock is trading at a discount of 30% compared to consensus price target estimates.
Brookfield Renewable Partners
Another renewable energy heavyweight, Brookfield Renewable is one of the world’s largest producers of hydroelectric power which accounts for 62% of its portfolio. Brookfield is also expanding its base of wind and solar energy assets and sells a majority of the power generated via long-term power purchase agreements.
Brookfield Renewable Partners has managed to deliver annual returns of 20% in the last two decades. Its growth has been powered by a consistent expansion of its portfolio by acquisitions as well as organic investments.
Since 2012, Brookfield's earnings have risen at an annual rate of 10% while dividends have grown by 6% in this period. The company expects to derive returns of at least 20% through 2025 while increasing dividends between 5% and 9% each year. Right now, Brookfield Renewable provides investors a tasty forward yield of 3.4%.
The final stock on my list is Clearway Energy which is valued at $6.2 billion by market cap. After adjusting for dividends, Clearway Energy has returned 134% to investors in the last five years. Currently, it offers investors a dividend yield of 4.4%. In Q4 of 2021, Clearway Energy’s cash available for distribution rose by 16.7% to $35 million.
Further, its CAFD rose by 14% year over year to $336 million in 2021, which was higher than the company’s initial forecast of $325 million. Clearway’s dividend payouts have increased by 7% in the last year and it also invested $820 million to expand its renewable energy portfolio.