In the past five years, the global economy has invested $1.5 trillion in adding new renewable energy generating capacity, according to Bloomberg New Energy Finance. While that's a massive amount of money, it's just the tip of the iceberg. In the next decade, the global economy could pour another $5 trillion-$10 trillion into renewable energy to help stem the effects of climate change.
The sector represents an enormous multidecade growth opportunity for investors. Three of the top companies focused on this market are Brookfield Renewable Partners (BEP -1.07%), TerraForm Power (TERP), and NextEra Energy Partners (NEP 0.04%). All three boast excellent growth prospects while also paying an attractive dividend. That should give them plenty of power to generate strong total returns, making them great long-term buys right now.
All powered up to generate monster returns
Brookfield Renewable Partners is one of the world's largest renewable energy companies. It currently operates a diversified portfolio of green energy assets, including hydro, wind, solar, and energy storage. These facilities generate very predictable cash flow for Brookfield because it signs long-term, fixed-rate contracts to sell most of its power to end-users. That gives it the money to pay a well above average dividend that currently yields 5%.
Adding to Brookfield's attractiveness is its growth prospects. The company currently expects to grow its cash flow per share by a more than 10% annual rate through 2024. Four factors power that plan:
- Inflation escalators in its existing power contracts should add an incremental 1% to 2% to cash flow per share each year.
- Cost reduction initiatives and higher power rates should increase earnings by another 2% to 4% annually.
- Development projects will organically grow cash flow by another 3% to 5% per year.
- Acquisitions should add a further 3% to 5% annual boost to the bottom line.
Overall, Brookfield plans to pour $4 billion into new development projects and acquisitions over the next five years to help power double-digit earnings growth. Add that to the company's high-yield, and Brookfield Renewable could generate total returns of more than 15% annually over the next five years. That ability to potentially earn a mid-teens annual return makes it an excellent buy for the long haul.
Turning around nicely
TerraForm Power is a wind and solar-focused company with assets in North America and Western Europe. Like Brookfield Renewable, TerraForm sells the bulk of the electricity these assets generate under long-term, fixed-rate contracts. That enables the company to produce steady cash flow, which it uses to pay an attractive, 4.5%-yielding dividend.
The company's aim going forward is to increase that payout at a 5% to 8% annual rate through at least 2022. Powering that plan are initiatives to improve the cash flow of its legacy assets as well as organic growth projects, such as repowering some of its existing wind farms by adding new, more powerful turbines. The company has the potential to generate total annual returns in the 10% to 13% range over that time frame.
Meanwhile, there's ample upside to that plan if TerraForm continues making needle-moving acquisitions. The company, for example, recently purchased a U.S. solar power portfolio. That deal will provide a near-term boost to its cash flow while also enhancing its long-term growth prospects. Deals like that add to its total return potential, making TerraForm a great buy for the long term, even though shares have been sizzling this year.
High-powered growth ahead
NextEra Energy Partners is a U.S.-focused renewable energy company sponsored by leading clean energy utility NextEra Energy (NEE 0.19%). The company sells the power its wind and solar assets generate to other utilities and commercial customers under long-term, fixed-rate contracts. That enables it to produce steady cash flow, which it uses to pay a 3.8%-yielding dividend.
As attractive as that payout is right now, NextEra Energy Partners has ambitious plans to grow it in the coming years. The company currently expects to increase it at a 12% to 15% annual rate through at least the end of 2024. The primary power source for that plan will be the continued acquisition of renewable power projects developed by NextEra. That high-octane dividend growth sets NextEra Energy Partners up to generate big-time total returns in the 16% to 19% annual range through 2024. That makes it an exceptional stock to buy for the long haul.
Make lots of green with these green energy stocks
This trio of renewable-energy stocks offers investors an enticing combination of yield and growth prospects. They should therefore have the power to generate total returns of more than 10% annually over the next several years. That high upside potential makes them excellent long-term buys right now.