Stimulus checks are showing up in bank accounts across the country this month. At as much as $1,400 apiece, they're the largest ones so far. While the checks are designed to stimulate the economy by giving Americans cash to pay their bills, many people have the money they need to meet their needs, giving them the freedom to use their stimulus funds on other things. One of those options is to invest that money, provided they have an adequate emergency fund, have paid off their credit cards, and won't need the money for a few years.
Given that backdrop, we asked some of our contributors for their stock ideas for those planning to invest their stimulus checks. They chose Dominion Energy (D 0.64%), Clearway Energy (CWEN 0.21%)(CWEN.A), and Brookfield Renewable Partners (BEP 1.89%)(BEPC 1.45%). Here's why they believe this trio of stocks could stimulate long-term wealth creation.
Dividend growth on tap
Reuben Gregg Brewer (Dominion Energy): Giant U.S. utility Dominion Energy sold most of its midstream business to Berkshire Hathaway in 2020, leading to a 33% dividend cut. That's the bad news, but it has to be juxtaposed against the benefits of this transaction.
First off, Dominion has now completely transformed itself into a boring old regulated utility, removing the riskiest portion of its business. Second, the dividend cut brings its payout ratio from the high end of the industry to a very reasonable 65% or so. And, third, it sets the government-regulated company up for highly predictable 6.5% or so earnings growth through 2025, with dividend growth expected to trail closely behind at 6%. Previously dividend growth was expected to be in the low single digits, at best. So, all in, Dominion's asset sale has arguably improved the outlook for long-term dividend investors.
Right now the stock has a 3.4% yield, which is more than twice what you can get from an S&P 500 index fund and roughly in line with the average utility, using the Vanguard Utility Index ETF as a proxy. But it is telegraphing generous dividend growth secured by $32 billion in capital investment plans over the next five years. So, if you use your stimulus check to buy into this story, you'll be adding a fast-growing, utility-backed income stream to your portfolio. Talk about a stimulus boost!
Turn your stimulus check into a renewable income stream
Matt DiLallo (Clearway Energy): There's a well-known saying that "If you give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime." Receiving a one-time windfall like a stimulus check is a lot like the first part of that quote. Once spent, it's gone. However, if you invest that money, it can provide a lifetime of income and grow it into an even bigger windfall in the future.
An excellent investment option for those looking to turn their stimulus check into a longer-lasting income stream is renewable energy producer Clearway Energy. Clearway pays a cash dividend that yields 5%. In other words, an investment in Clearway would turn a stimulus check into an income stream that currently amounts to $70 per year. That might not seem like much, but it could offset one minor expense, which is better than working hard to cover that cost each year. Moreover, Clearway expects to grow its dividend at a 5% to 8% annual rate for the next several years, meaning that the income stream should steadily head higher. Powering that growth is the company's ability to continue expanding its renewable energy portfolio by acquiring or developing additional wind and solar energy projects.
The company's growth should help propel Clearway's stock price in the coming years. As it does, the initial $1,400 investment could grow into an even bigger windfall. Given the enormous growth potential of renewable energy, it could be life-changing money for those who hold for the long haul. That potential of earning a nice income stream with lots of upside potential makes Clearway a great way to put your stimulus payment to work.
Buy and forget this stock for decades
Neha Chamaria (Brookfield Renewable Partners): Brookfield Renewable shares are down roughly 7% so far this year. That may not seem not a big drop, but any dip in this stock should be seen as an opportunity; and there's nothing like it when such an opportunity pops its head just as you have some surplus cash to park somewhere.
The strongest bull argument for Brookfield Renewable is the ongoing global shift from fossil fuels to renewable energy. As one of the world's largest renewable energy companies, Brookfield is incredibly well placed to ride the wave. To its credit, the company's pipeline of roughly 23 gigawatts is already larger than its currently installed capacity. Also, Brookfield is aggressively branching out from hydropower to solar and wind, making it one of the most diversified renewable energy companies in the making.
Brookfield also has a solid financial standing and delivered a record year in 2020, growing its funds from operations by 6% and increasing its dividend by 5%. With management targeting 5% to 9% annual growth in the dividend and 12% to 15% total annualized shareholder returns, investors can bank on Brookfield Renewable to generate market-trumping returns for years to come. In fact, I consider Brookfield to be one of the top stocks to hold for the next 20 years, so you might want to put your stimulus check to work already.