The energy market can be a tough place for investors. Energy prices are very volatile, which can cause significant fluctuations in energy stock prices. There's a lot an investor needs to learn before they can become skilled in the energy sector. Even with that knowledge, they can still underperform due to the industry's complexity.
However, a few energy stocks stand out as ideal options for those looking to dip into this turbulent sector. Three great ones for beginners are Brookfield Renewable (BEP) (BEPC -0.09%), Enbridge (ENB 0.68%), and NextEra Energy (NEE 0.54%).
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A top-tier way to invest in renewable energy
Brookfield Renewable is an excellent energy stock for beginning investors for many reasons. For starters, it has a long track record of creating shareholder value. Since its inception, Brookfield has produced a 19% annualized total return (dividend income plus stock price gains), significantly outperforming the S&P 500. The company has achieved that elite performance by steadily growing its renewable energy portfolio, cash flow, and dividend.
One of the secrets to Brookfield's success is its low-risk business model. The company operates one of the world's largest renewable energy businesses. It sells the power those facilities produce under long-term power purchase agreements with end users like a utility, enabling it to generate very stable cash flow. Meanwhile, Brookfield pays out a reasonable portion of that cash flow to support its dividend, reinvesting the rest to continue expanding its portfolio. It has an investment-grade balance sheet, giving it lots of financial flexibility. These factors combine to make it one of the safest ways to invest in renewable energy.
Rock-solid in a turbulent sector
Canadian energy infrastructure giant Enbridge has a long history of creating wealth for its investors. The company has increased its dividend for 26 consecutive years, growing it at a 10% compound annual pace. That's given it the fuel to generate total annual returns averaging 25% during that time frame.
Enbridge also operates a relatively low-risk business model, as long-term, fixed-fee contracts or government-regulated rates support nearly all its income. Its cash flow doesn't fluctuate too much when energy prices decline. That gives it the income stability to pay its dividend and finance expansion projects. While most of the company's assets are oil and gas pipelines, Enbridge has started investing in renewable energy in recent years, building a large offshore wind business in Europe to complement other renewable energy assets in North America. That focus on the future of energy should provide the power needed for Enbridge to continue growing its dividend in years to come.
A low-risk utility with renewable-powered upside
NextEra Energy also has an excellent track record of creating shareholder value. Over the last decade, the electric utility has produced a more than 500% total shareholder return, roughly double that of the S&P 500. Powering that wealth creation has been NextEra's ability to steadily expand its earnings and dividend.
Its steadily expanding Florida utility and its large renewable energy business are fueling its financial growth. The company has grown those businesses by maintaining a conservative dividend payout ratio and elite balance sheet, giving it the financial flexibility to fund expansion projects and acquisitions. With renewable energy development expected to accelerate in the coming years, NextEra Energy has the fuel to continue expanding, which should power continued outperformance.
Great ways to start investing in the energy sector
Brookfield Renewable, Enbridge, and NextEra Energy share several qualities. They all generate relatively stable cash flow backed by long-term, fixed-rate contracts. They use a portion of those funds to support a steadily growing dividend, giving them the financial flexibility to keep expanding. Finally, all are investing in the energy transition toward a cleaner future. Those factors reduce their risk, making them great options for beginning investors.
