Solar power is red hot these days. Because of rapidly falling costs and climate change concerns, the U.S. is pouring billions of dollars into building new solar power generating capacity. As a result, the amount of electricity the country produces from the sun is on track to grow 10% this year and another 17% in 2020, according to a forecast by the U.S. Energy Information Administration.
This outlook suggests that companies focused on the solar sector should thrive in the coming years. Three companies well positioned for the industry's bright future are Brookfield Renewable Partners (BEP -0.65%), TerraForm Power (TERP), and NextEra Energy (NEE 1.59%). Here's a closer look at why they're the top options to buy these days.
Betting big on solar
Brookfield Renewable Partners is one of the world's largest renewable energy-focused companies. It operates a globally diversified portfolio of assets, including hydro, wind, solar, and energy storage. While hydro is currently its biggest power generator at 75% of its 17,500 megawatts (MW) in total capacity, solar -- which comprises 4% of its portfolio -- is becoming an increasingly important growth driver.
The company has two main solar-focused growth initiatives under way. First, it has a joint venture with its parent Brookfield Asset Management and a leading logistics and industrial company in China to build solar projects on commercial and logistics rooftops in that country. They aim to install 300 MW of solar capacity in the next three years and 1 gigawatt over the long-term. Meanwhile, Brookfield Renewable recently partnered with private equity giant KKR on a joint venture to own a leading solar power developer in Spain. That company currently operates 273 MW of solar power capacity, has another 1,413 MW under construction, and a broader 4,800 MW in development in the U.S., Spain, Mexico, Chile, and Japan.
Those solar projects are a key power source for Brookfield Renewable's dividend growth plan. In the company's view, they'll help grow its cash flow per share at a 6% to 11% annual pace over the next five years. That should allow the company to increase its 5.2%-yielding distribution to investors at a 5% to 9% yearly rate.
A solar boost
TerraForm Power operates a portfolio of wind and solar assets in North America and Western Europe. While wind makes up 64% of its 3,700 MW of power generating capacity, the company gets about 51% of its revenue from solar due to higher-priced contracts.
TerraForm Power, meanwhile, is in the process of further boosting its solar power business by acquiring a 320 MW portfolio of solar assets in the U.S. for $720 million. That deal will bolster the company's cash flow per share even after factoring in the future sale of a minority stake in its wind assets to help fund the purchase.
This acquisition enhances TerraForm's dividend growth plan. It's increasingly confident that it can grow its 4.8%-yielding dividend at a 5% to 8% annual rate through at least 2022.
A bold expansion plan
NextEra Energy is a utility focused on clean energy. It's already the world's largest producer of electricity from the wind and sun. That lead should grow in the coming years, given the amount of money it expects to invest in building new renewable generating capacity.
NextEra's energy resources business, which sells renewable energy to other utilities and end-users, currently has 18 GW of wind and solar assets generating power. However, that entity expects to invest a staggering $25 billion to $28 billion over the next four years to build out an additional 11.7 GW of capacity.
Those investments support the company's view that it can grow its earnings per share at a 6% to 8% annual rate through at least 2022. That will enable the company to increase its 2.3%-yielding dividend at a 12% to 14% annual rate through at least 2020.
Solar-powered income growth
All three of these renewable energy companies expect to grow their earnings at a healthy pace over the next several years, powered at least in part by investments in solar. That will enable them to increase their above-average dividends by meaningful rates over that timeframe. Those growing income streams should provide them with enough power to generate market-beating total returns, making them excellent buys right now.