There couldn't be a better time to buy renewable energy stocks. The coronavirus market sell-off has driven prices of stocks in the industry to alluring levels even as global demand for renewable energy continues to rise.
In its Annual Energy Outlook 2020 report, the U.S Energy Information Administration (EIA) projects renewables to be the "fastest-growing source of electricity generation through 2050." EIA projects electricity generated from renewable energy sources in the U.S. to surpass coal and nuclear by 2021.
Clearly, the bull case for renewable energy is stronger and more relevant than ever, which is why stocks like NextEra Energy Partners (NEP -2.79%), Brookfield Renewable Partners (BEP -4.52%), and TPI Composites (TPIC -2.49%) look primed for growth for decades to come.
A top dividend growth stock on sale
NextEra Energy Partners was formed in 2014, when NextEra Energy (NEE -1.66%) spun-off its solar and wind energy projects to form an exclusive clean-energy focused limited partnership. Note that while "renewable" and "clean" are often used interchangeably, clean energy is a wider term that also includes "cleaner" fuel alternatives like natural gas aside from replenishing energy sources such as the sun and wind. As of January 2020, NextEra Energy Partners owned:
- Nearly 3gigawatts (GW) of renewables capacity, with 85% in wind.
- Eight natural-gas pipelines.
- 16-year remaining contract life of portfolio.
- A diversified customer base count of around 50.
Dividends are a big reason NextEra Energy Partners should appeal to investors in renewable energy. The company says its business objective is to "acquire interests in contracted clean energy projects from NEER or third parties that allow NEP to increase its cash distributions to the holders of its common units over time."
In other words, NextEra Energy Partners' business and goal is to:
- Acquire clean energy assets, built primarily by parent NextEra Energy.
- Operate them and sell power to utilities under long-term, contracted, power-purchase agreements.
- Return a major portion of cash flows generated as dividends to shareholders.
NextEra Energy Partners aims to grow dividends at a compound annual growth rate (CAGR) of 12%-15% through "at least 2024" backed by several growth projects in the pipeline. Factor in current dividend of 5%, and NextEra Energy Partners makes for a top renewable energy stock to buy.
The best diversified renewable energy play
Brookfield Renewable Partners, backed by Brookfield Asset Management, is one of the best diversified renewable energy stocks you can find. While NextEra Energy Partners is focused on wind and solar, Brookfield Renewable specializes in hydropower, or the generation of electricity from water streams. Hydropower is hugely underrated: You may be surprised to know that hydropower has, through 2019, been the largest renewable energy source of electricity in the United States.
Brookfield Renewable, though, is diversifying aggressively, having invested as much capital in wind and solar combined as hydropower between 2014 and 2019. Brookfield's impending (but finalized) acquisition of TerraForm Power will add 4,200 megawatts of isolar and wind capacity to its portfolio, making it one of the world's largest renewable energy companies.
In September 2019, Brookfield outlined plans to pursue acquisitions, develop project pipeline, and improve cost efficiency to grow funds from operation (FFO) per share at a CAGR of at least 10% between 2020 and 2024 and annual dividends by of 5%-9% to generate 12% or more total returns for shareholders. That makes Brookfield Renewable a terrific stock to load up on, especially now with the stock having lost almost 30% value from its February highs and yielding 5.4%, as of this writing.
A wind-blade manufacturer with incredible potential
After discussing two incredible companies that generate electricity from renewable energy sources, how about looking at one that supplies the renewables industry? Think solar panel and wind blade manufacturers. My eyes are on TPI Composites right now, the world's largest independent composite wind-blade manufacturer.
TPI's customers make up 99% of the U.S. onshore wind and 52% of the global offshore wind market. Largest customers include Vestas, GE Wind (part of General Electric's Renewable Energy subsidiary), Siemens Gamesa Renewable, Nordex, and Enercon.
With such an impressive customer base, TPI should be a major beneficiary of any growth in wind energy. The U.S. Department of Energy projects total wind capacity to grow more than threefold to nearly 404.25 GW between 2020 and 2050 in the U.S. alone.
TPI's sales shot up nearly 40% to $1.44 billion, and total billings -- the amount invoiced that will be recorded as revenue after product delivery -- rose by 38% to $1.39 billion in 2019. Existing contracts reflect potential revenue of nearly $5.2 billion through 2023. TPI's latest long-term goals include:
- Annual wind revenue of $2 billion.
- Market share of 20%.
- Free cash flow of 7%-9%.
With TPI stock crashing 43% in the past one month, it's certainly worth a look now.