Renewable energy stocks are soaring across the market. Companies with decades of history manufacturing and deploying projects are up, companies with zero revenue are up, and emerging technologies are being priced like they're going to change the world. It's easy to be confused about the best renewable energy stocks on the market.
That's why in February my top renewable energy stock is Hannon Armstrong Sustainable Infrastructure (HASI -0.66%). The company isn't a household name, but it finances existing and emerging technology in the energy sector. And it's well-positioned to adapt and grow as the market expands.
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Enabling renewable energy
Hannon Armstrong is really more of a finance company than a renewable energy company, but its focus is on renewable and sustainable infrastructure. That's what makes it one of the most critical companies in the industry.
Management breaks the company into three segments: behind the meter, grid-connected, and sustainable infrastructure. They each represent different opportunities and risks, but together they provide a diversified class of assets in growing markets. Here's what those businesses entail.
Behind the meter
The assets behind the meter include energy efficiency, distributed solar, and energy storage assets, which stand between the utility meter and the end customer. This could be assets at a home or business like residential solar installations. In small projects like this it can be hard to find financing, so Hannon Armstrong has become a go-to for industry players trying to put together tens of thousands of assets and find financing for them.
Grid-connected
In front of the meter are larger assets like wind and solar farms, which Hannon Armstrong also helps finance. Depending on the project, it may finance the land under the project or take a debt position, but management is always looking for consistent, contracted cash flows. As with smaller projects, having financing available is critical to developers.
Sustainable infrastructure
The sustainable infrastructure segment is the most diverse and hardest to put into a single bucket, despite being the smallest. Management outlines examples like stormwater remediation, ecological restoration, and resiliency, but the common thread is these are infrastructure investments that have a positive impact on climate change.
Put together, these are a diverse set of assets, all in growing markets. That puts the winds of the energy industry behind Hannon Armstrong long-term.
A cash machine
On the cash flow front, Hannon Armstrong is incredibly stable. Its assets have an average remaining life of 16 years, which allows the company to pay a steadily growing dividend.
This is what helps drive the company's growing revenue, net income, and ultimately the dividend. You can see below that results are choppy, depending on how much the wind blows or sun shines, but long-term the trend is a growing business.
HASI Revenue (TTM) data by YCharts
The company's current dividend yield of 2.2% isn't high by energy standards, but it should grow as the company's investments grow.
The winds of energy are changing
Hannon Armstrong isn't a household name in energy, but it's enabling the growth of renewable energy around the world, and generating a steady stream of cash flows as a result. If you're looking for a renewable energy stock with the benefit of a dividend, this is a great stock to buy today.
