Solar energy stocks have been blistering hot this year. The Invesco Solar ETF, an exchange-traded fund that holds more than 20 solar-focused companies, has surged more than 50%, doubling the return of the S&P 500. As a result, these renewable energy stocks aren't quite as attractive as they were to start the year.
However, solar is still in the early innings of its growth, with many in the industry expecting that development will accelerate over the next several years. Thus, solar-focused companies still appear to have lots of upside ahead. Three of the most attractive ones to buy right now are utility Con Edison (ED 1.30%), solar panel maker First Solar (FSLR -1.49%), and renewable yieldco NextEra Energy Partners (NEP).
Quietly becoming a leader in the solar sector
New York City-focused utility Con Edison usually isn't the first name that investors think of when they're looking for a solar energy stock. However, the company's clean energy business currently owns the second-largest portfolio of solar energy assets among its peer group at 2.2 gigawatts (GW). Though most of that capacity is in other states, with it mainly selling the power these facilities produce to other utilities.
The company's exposure to solar should continue growing over the next few years. That's because it expects to invest $1 billion on new clean energy projects through 2021. Meanwhile, it plans to play a key role in helping New York State reach its ambitious target to get 100% of its power from carbon-free sources by 2040.
Those investments should give Con Edison the power to continue growing its 3.4% yield, which is something it has done in each of the last 45 years. That steadily rising dividend, when combined with its solar-powered growth, makes it a low-risk way to invest in this sector.
The Series 6 is red-hot
While shares of First Solar have gained about 30% this year, it has underperformed the sector. That's due in part to its lackluster third-quarter results, which took some of the shine off its stock. However, the company reaffirmed its full-year guidance, which would see earnings rocket 80% from last year's level.
Powering that growth is the company's transition to the Series 6 module, which is selling at a brisk pace. The company booked orders for 1.1 GWs of new panels over the last quarter, bringing its year-to-date order total to 5.4 GW, which pushed its current backlog up to 12.4 GW. In the meantime, it has another 8.1 GW of mid- to late-stage opportunities in the pipeline. To put that into perspective, the company currently only has the capacity to make 5.5 GW of these solar panels each year. Add that highly visible revenue stream as it builds and delivers these orders to its cash-rich balance sheet, and First Solar is an ideal way to gain direct exposure to the growth of the solar sector.
High-powered dividend growth
While NextEra Energy Partners hasn't done as well as some other solar stocks, it has still generated a nearly 28% total on the year, which is right in line with the equally red-hot S&P 500. Powering the clean energy-focused company's big gains this year has been a string of needle-moving acquisitions. The company has acquired two portfolios of wind and solar power facilities from its parent NextEra Energy over the past year. Meanwhile, it recently bought a stake in a natural gas pipeline
Those deals have given it enough power to grow its 3.9% dividend yield by a 12% to 15% annual rate through the end of next year without needing to make any more acquisitions. The company also estimates that it can maintain this through at least 2024 by acquiring more assets from NextEra or third parties. That fast-paced dividend growth makes NextEra Energy Partners a great solar stock for income-seeking investors.
Lower-risk ways to invest in this red-hot sector
Solar stocks generated scorching-hot returns this year. However, that doesn't mean investors have completely missed out on this sector. Con Edison, First Solar, and NextEra Energy Partners all offer strong upside potential since they haven't risen quite as sharply as their peers. Add in their healthy financial profiles and visible growth potential, and they are lower-risk buys for those seeking to invest in the solar sector.