It's been a wild ride in the energy sector lately. Oil prices, decimated in March by the Saudi Arabia-Russia price war, have fallen even further. Nervous oil and gas production companies have slashed spending, cut or suspended their dividends, or both.
With so much uncertainty in the oil and gas sector, this month it's probably better for investors to just avoid the whole mess and focus on other areas of the energy sector. Compelling energy stocks right now include NextEra Energy (NEE -1.05%), Brookfield Renewable Partners (BEP -1.89%), and Clearway Energy (CWEN -2.48%) (CWEN.A -2.39%). Here's why these stocks look like good buys.
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Biggest of the big
Energy juggernaut NextEra Energy is both a utility and a solar and wind power generation company. Either way, it's big. It's the largest publicly traded utility in the world, and also the biggest generator of solar and wind energy. It's also the only one of the ten largest energy companies in the world that isn't in the oil and gas sector.
NextEra owns Florida utilities Gulf Power and Florida Power and Light. Its 5.5 million utility customers provide a steady stream of revenue and cash flow, as does its 46 gigawatt power-generation portfolio, more than half of which comes from emissions-free sources, including solar, wind, and nuclear power. NextEra uses this stable income stream to build more renewable energy assets and to reward shareholders with a dividend that's increased every year for the past 25 years.
Management is bullish on the company's prospects despite the COVID-19 pandemic. In its most recent earnings presentation, in fact, the company said it would be "disappointed" if it wasn't able to deliver per-share earnings at the high end of its guidance range for the next three years. NextEra also predicted a 10% annual increase in the dividend.
With shares currently down year to date, after decades of steady growth, NextEra looks like a buy.
Hydropower meets wind and solar
For investors looking for a higher yield than NextEra's current 2.2%, Brookfield Renewable Partners -- with a current 4.7% yield -- might be of interest. Brookfield is a master limited partnership (MLP), which often sport high payouts. Brookfield, however, is also no stranger to growth.
Although Brookfield's assets include wind and solar, its largest power generation source is hydropower. The company recently agreed to purchase the 38% of wind and solar farm operator TerraForm Power (TERP) that it didn't already own, adding to its solar and wind generation infrastructure, to bring the company's total generation capacity to 36 gigawatts. With this addition, management believes it can increase cash flow per unit (MLP-speak for "share") by between 9% and 16% every year through 2024.
With big growth prospects and an adept management team at the helm, Brookfield also looks good right now.
A bit of risk
Electricity producer Clearway Energy is small potatoes compared to the two prior companies, with just over 7 gigawatts of generation capacity. While about 60% of that capacity comes from solar and wind farms, the rest is from natural gas fired power plants.
Clearway is also on less firm financial footing than NextEra or Brookfield. In 2018, after major utility customer PG&E declared bankruptcy, Clearway had to slash its dividend by 40%. That caused its share price to tumble by about 25%. However, Clearway has since acquired a new controlling investor that has greenlit several wind projects that should power Clearway to future growth. These assets are in Texas, Washington state, and West Virginia, which will reduce Clearway's reliance on the troubled PG&E.
Still, Clearway isn't a slam dunk investment. Management is projecting strong growth, and its plan includes growing the dividend, which currently yields 4% for the C shares, or 4.3% for the A shares. However, this year has been full of surprises, and Clearway's plans could get derailed. But as of right now, it looks like a buy.
Out of oil
The oil and gas markets are volatile right now, and there's a lot of uncertainty about how things will turn out for the global petroleum industry. For now, I'm recommending energy investors stick to safer parts of the energy sector like power generation and renewable energy. NextEra Energy, Brookfield Renewable Partners, and Clearway Energy look like good buys in May.
