Renewable energy sources have been around for decades. But of late, growing climate change concerns coupled with falling costs of generation from renewables have resulted in a new enthusiasm for these sources. This trend is here to stay, as the share of renewables as an energy source is expected to rise dramatically in the years to come. Here are two stocks that you must add to your renewable energy portfolio in 2021 to benefit from this trend.
With operations in 23 countries, Canadian Solar (CSIQ 0.57%) is one of the largest solar panel manufacturers in the world. In 2020, the company sold around 11.3 gigawatts (GW) of panels and related products. Since 2013, Canadian Solar's cumulative growth in shipments is around 30%. Moreover, the company expects 65% growth in shipments in 2021 to around 18 GW to 20 GW. In line with the growth in shipments, Canadian Solar's revenue grew at an annual average rate of more than 20% over the last ten years.
Canadian Solar is also generating industry-leading margins on its sales. As the graph above shows, its average margins for five years exceeded those of its top peers. The company attributes its higher margins to its differentiated market strategy. It prioritizes deliveries to the premium rooftop segment, which contributes more to its margins.
To further fuel the company's growth, Canadian Solar plans to continue investing in expanding its production capacity and increasing vertical integration. Canadian Solar has a project pipeline of 16.3 GW, including 1.3 GW under construction and 3.8 GW of backlog.The backlog includes projects that are expected to be built in the next one to four years and have received the required environmental and regulatory approvals as well as agreements with potential buyers. The rest of the company's project pipeline includes opportunities at various stages of development, but haven't yet passed all the high-risk stages and so have a fair chance of not ultimately materializing. Canadian Solar's planned capacity additions include solar glass, which will help remove some of the margin pressure and raw material shortage that the company is currently facing.
Moreover, Canadian Solar is making headway in the power storage business. The company expects battery storage to become a significant profit driver in 2021. Canadian Solar has massive growth potential in this segment, as the company can directly integrate the batteries into its modules.
To raise the funds needed for expansion, Canadian Solar plans to list its Module and System Solutions subsidiary on China's stock exchange, while remaining its controlling shareholder. With the listing, the company hopes to access low-cost funds, without straining its balance sheet. That's because it sees a valuation gap between similar China-listed solar companies and its own current valuation.
Attractive growth prospects combined with a reasonable valuation make Canadian Solar stock a worthy addition to your portfolio.
Brookfield Renewable Partners
Brookfield Renewable Partners (BEP -0.04%) is one of the very few renewable energy stocks that has delivered consistent results over the last several years. While the performance of most renewable energy companies has been erratic so far, Brookfield Renewable managed to grow its revenue and dividends consistently. This gets reflected in the stock's total return performance too.
Brookfield Renewable owns assets across all major renewable sources, including hydropower, wind, and solar. Brookfield Renewable adopts a returns-based approach on its assets. So, while it grows and expands its operations organically, it also regularly acquires assets to grow its portfolio. This allowed the company to grow its funds from operations by more than 10% CAGR in the past decade.
The company is structured as a partnership, but you can also invest in it via its newly created corporation, Brookfield Renewable Corporation (BEPC -0.15%). The shares of the corporation are economically equivalent to those of the partnership and offer exposure to the same assets, without the need to own LP units.
Brookfield Renewable intends to deliver annualized total returns of 12% to 15% to its shareholders in the long term, including annual dividend growth of 5% to 9%. The stock currently trades at a dividend yield of around 3%, making it attractive for income-seeking investors too. Brookfield Renewable's track record and its growth prospects make it one of the best renewable energy stocks to add to your portfolio in the new year.