Investing in dividend stocks is a great way to generate cash that can be used to save for retirement, to grow your portfolio, or just to pay bills. But not all dividend stocks are the same, and investors need to balance dividend yield with sustainability and long-term dividend growth potential. 

I think three energy stocks -- TerraForm Power Inc (NASDAQ:TERP)Hannon Armstrong Sustainable Infrastructure Capital Inc (NYSE:HASI), and AES Corp (NYSE:AES) -- have what it takes to be great dividend stocks for investors looking to generate cash from their portfolios. 

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Energy's new dividend play

TerraForm Power is a new type of energy company that's popped up in the last decade called a yieldco. It owns renewable energy assets that have long-term contracts to sell electricity to utilities, known as power purchase agreements (PPAs), which is how it generates revenue. It then uses the excess cash flow from operations to pay down debt, buy growth projects, or pay a dividend to investors. 

The company currently owns 2,606 megawatts (MW) of wind and solar assets across the U.S., with an average of 14 years left on its PPAs, giving it a long runway of cash generation for investors. This contracted cash flow funds a dividend that's currently $0.19 per quarter, or a 6.8% yield at today's stock price. 

What TerraFrom Power has going for it over competing yieldcos is the backing of Brookfield Asset Management, the yieldco's sponsor and largest shareholder. Brookfield has proven its ability and willingness to backstop growth acquisitions, like the recently announced acquisition of Saeta Yield, a Spanish operator of renewable energy assets. Brookfield provided $500 million of the $1.2 billion acquisition cost through a line of credit, and then backstopped a $400 million equity offering. With a sponsor like that, TerraForm Power will be able to keep acquiring assets to keep its dividend growing for the foreseeable future.

Financing energy upgrades

One strange reality in energy is that it's hard for corporations or municipalities to pay for energy upgrades, even if they're money-saving investments long-term. That's where a company like Hannon Armstrong comes in, financing efficiency upgrades, sustainable infrastructure, and wind and solar projects. Hannon Armstrong often takes unique positions in energy assets that entail lower risks while still generating strong returns for investors.

A great example is Hannon's $107 million acquisition of 7,500 acres of land underlying 60 solar projects. The land purchase frees up money to fund the solar projects developers are focused on -- and for Hannon Armstrong, the land leases are a great source of revenue, and are backed by 1,200 MW of solar projects that have long-term PPAs. 

In wind, Hannon Armstrong prefers to take positions that are lower risk than equity positions. One structure the company recently used was a $144 million preferred equity investment in 10 wind projects, structured to ensure a "preferred return" that was negotiated as part of the deal.

The returns Hannon Armstrong generates from its energy investments support its 7% dividend yield, and given the need corporations and municipalities have for energy assets, the future looks bright for this energy stock. 

An old school utility with new school thinking

AES is a wholesale power utility that owns electricity distribution and generation assets in 15 countries. Given the struggles wholesalers face from renewable energy and natural gas, it's no surprise AES has struggled with shrinking sales and falling net income the last decade. 

AES Revenue (TTM) Chart

AES Revenue (TTM) data by YCharts

What's encouraging about AES's business today is that it's transitioning to more renewable resources. At the end of the first quarter, 21% of the company's 24,104 MW of generation were supplied by renewable energy assets like hydro, wind, solar, energy storage, biomass, and landfill gas, and it has another 946 MW of renewable energy assets due to come online in the next year.

Where AES is building a unique business is energy storage, where it has partnered with Siemens to form a joint venture called Fluence. When it was formed in January 2018, Fluence had 500 MW of energy storage projects deployed or under contract, one of the biggest energy storage asset bases anywhere in the world. According to GTM Research, the global demand for energy storage is expected to grow from 431 MW-hrs in 2017 to over 9,000 MW-hrs in 2023; taking a leading position early will be useful for Fluence and AES.

Making the transition from fossil fuels to renewable energy has been difficult, but AES is well on its way, and I think the company's leadership position in energy storage will be a valuable asset long-term. That's why I'm bullish on the company, and why I think its 4.3% dividend yield is a good buy for investors. 

Not all energy dividends are great buys given the volatility of oil, natural gas, and electricity markets, but TerraForm Power, Hannon Armstrong, and AES have what it takes to be great dividend stocks long-term. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.