The COVID-19 outbreak has had a tremendous impact on the energy sector this year. Even the renewables industry hasn't been immune, as demand for new solar panels has cratered, forcing manufacturers to temporarily suspend production.
However, while demand for new capacity might be facing some headwinds, renewable energy consumption remains steady because utilities continue to favor it over fossil fuels. Because of that, companies that operate these facilities have continued to produce stable earnings. That makes them ideal stocks to buy, especially for investors seeking lower risk exposure to the sector.
The gold standard in renewables
There haven't been too many bad times to buy Brookfield Renewable Partners. Since its inception nearly 20 years ago, the company has generated a 17% total annualized return, which is light years ahead of the S&P 500's 5% total annualized return. It has also crushed the market during the last three- and five-year periods.
The renewable-power producer aims to continue generating market-beating returns, with its stated goal to produce total annualized returns of 12% to 15% over the long term, powered by a steadily growing dividend. That payout currently yields 4%, and Brookfield believes it can grow at a 5% to 9% annual pace. It plans to support that dividend growth by continuing to expand its renewable-energy platform.
In its view, it can grow its cash flow at a double-digit annual rate over the next five years, supported by a combination of organic expansion and acquisitions. Given Brookfield's track record and rock-solid financial profile, that plan seems achievable, making it a great renewable energy stock to buy for the long haul.
Lots of power to boost the payout
Clearway Energy has the wind at its back these days. The company made several acquisitions and investments over the past few months, which set it up for fast-paced cash flow growth. Last year's deals have it on track to boost its cash flow by 22% in 2020. Meanwhile, it recently agreed to invest in a trio of wind projects, giving it a clear line of sight on another 9% increase. It also has a large pipeline of opportunities, thanks to its strategic relationship with a renewable project developer.
On top of that, one of the company's top customers, California utility PG&E (PCG 1.77%), recently reemerged from bankruptcy. As a result, Clearway's lenders will remove the restrictions on the cash generated from the company's contracts with PG&E. That will give it the freedom to boost its 3.6%-yielding dividend, which it could continue growing at a fast pace in the future, thanks to all the growth opportunities it has ahead.
High-powered dividend growth ahead
NextEra Energy Partners has a bold plan to increase its 4%-yielding dividend at a 12% to 15% annual pace through at least 2024. The company already has enough power to deliver that fast-paced growth this year, thanks to acquisitions it made last year. Meanwhile, the emergence of PG&E from bankruptcy will also provide a boost, since it, too, will now be able to access the cash generated from its contracts with that utility.
Meanwhile, NextEra Energy Partners has an extensive pipeline of growth opportunities, thanks to its relationship with leading electric utility NextEra Energy (NEE 0.02%). That company has a vast portfolio of cash-flowing renewable energy assets it can sell to its affiliate to provide it with the power to deliver on its dividend-growth plan. Because of that, NextEra Energy Partners appears poised to expand rapidly over the next few years, as long as it can access enough funding to close these deals.
Great ways to generate a steadily growing renewable income stream
Brookfield Renewable, Clearway Energy, and NextEra Energy Partners generate durable cash flow backed by renewable-energy assets. That gives them the funds to pay attractive dividends, as well as invest in expanding their portfolios.
Because of that, this trio should have plenty of power to grow their dividends, which should help them generate above-average total returns. That compelling combination of income and upside makes them great long-term buys these days.