The energy industry has changed rapidly over the last decade as oil and natural gas investments have struggled and renewable energy and electric vehicle (EV) production has exploded. You can see these macro trends at work in the chart below, and it's simply indisputable that the market is moving away from coal, oil, and natural gas to wind, solar, and EVs.
What's challenging now is how to make money off these trends. Renewable energy stocks haven't all done well in the last 10 years, and many have even gone bankrupt as companies have competed fiercely for a growing market. But there are opportunities if you know where to look. That's why I think Brookfield Renewable Partners (BEP), Enphase Energy (ENPH -5.56%), and Bloom Energy (BE -1.93%) are where investors should put their money.
U.S. solar energy production data by YCharts.
Energy's yield play
Energy investments have long been seen as great ways to generate yield. Big oil stocks have paid dividends for decades and master limited partnerships (MLPs) were a great yield play.
But with the macro changes you see above taking place in energy, it's renewable energy that provides better long-term dividends. And Brookfield Renewable Partners is a top option with 19,300 megawatts (MW) of assets around the world.
Brookfield Renewable's yield is 4.3% based on today's stock price, and that yield will likely grow. Management aims to grow the dividend 5% to 9% each year simply through organic cash flow growth. And the projects it's acquiring now normally come with 10- to 20-year contracts to sell electricity to utilities, which provide consistent returns. And that'll keep dividend payments growing.
Brookfield Renewable Partners isn't an MLP, but it's structured similarly as a limited partnership. It isn't going to be a flashy company, but it'll be a steady dividend yield for investors. And in energy, that's a valuable quality.
Image source: Getty Images.
Growing into the renewable future
Enphase Energy isn't the biggest renewable energy company and currently has a fairly small product line built around microinverters for solar panels. But that doesn't mean it isn't a crucial player with a bright future.
The core of Enphase Energy's business is small inverters that are attached to solar panels, turning the direct-current electricity from the panel to alternating current that's used in homes and electrical grids. This gives them insight as the "brains" of the solar installation.
Not only will Enphase be able to ride the growth of the solar industry overall, the company is also increasing the adoption rate of microinverters against power optimizers and string inverters. That's driving the revenue and earnings growth you see below.
ENPH Revenue (TTM) data by YCharts. TTM = trailing 12 months.
The next step is to have microinverters installed with panels at the factory, and there's progress on that front. Enphase has a large partnership with Maxeon Solar Technologies and Q Cells, and I think we'll see partnerships like that increase.
As microinverters grow, Enphase is in a position to push into another valuable market in energy storage, where it's starting to introduce products and see some adoption in the market. As it expands into new product lines, I think Enphase will continue to see sales rise and be a great energy investment for shareholders.
Disrupting energy as we know it
Bloom Energy makes fuel cells that have traditionally turned natural gas into hydrogen that's then used as energy backup for commercial buildings. But that's really just the start of its long-term potential.
If Bloom Energy is successful in executing its strategy, it'll be able to turn low-cost wind and solar electricity into hydrogen with newly introduced electrolyzers. It will then be able to store that hydrogen for use in fuel cells at end points that range from commercial buildings to large oceangoing ships.
As the cost of renewable energy has come down, the missing link to even wider adoption has been a long-term storage medium like hydrogen. And Bloom Energy is the first company to introduce a viable electrolyzer and fuel cell solution for electricity markets.
If hydrogen is successful in disrupting energy markets, Bloom Energy could be at the center of the industry's growth. And that could make this a growth stock for decades to come.
A changing energy industry
The theme of my stock picks this month is riding the wave of renewable energy growth and finding the companies that are disrupting energy as we know it. That's where I think the success will be for energy stocks long term, and Brookfield Renewable Partners, Enphase Energy, and Bloom Energy have a great chance to succeed in this renewable future.
