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Better Renewable Energy Buy: Brookfield Renewable vs. NextEra Energy

By Matthew DiLallo - May 27, 2021 at 7:16AM

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These two leading renewable energy stocks go head to head.

Brookfield Renewable (BEP -0.33%) (BEPC -0.67%) and NextEra Energy (NEE 0.40%) operate two of the largest renewable energy businesses in the world. They've also been excellent renewable energy investments over the years. Both have delivered a more than 20% annualized total return over the last decade as they've steadily expanded their operations.

However, as they say, past performance is no guarantee of future success. With that in mind, here's a look at which of these renewable energy leaders is the better buy for the next several years.

People gathered together looking at a computer screen to buy stocks.

Image source: Getty Images.

The case for buying Brookfield Renewable

The primary power source of Brookfield Renewable's strong returns over the past decade has been its ability to grow its funds from operations (FFO) per share at a more than 10% compound annual rate during that time frame. That enabled the company to increase its dividend at a 6% compound annual rate since 2012.

Driving the company's growth has been its knack for making value-enhancing strategic acquisitions that have enabled it to build out a diversified renewable energy portfolio. It's also invested in a steady stream of high-return development projects.

However, as good as the past decade has been, the next several years could be even better for Brookfield Renewable. The company estimates that a trio of organic growth drivers could power 6% to 11% annual FFO per-share growth through 2025. These include:

  • Inflation escalation on existing power purchase agreements (PPA) should grow FFO by 1%-2% per year.
  • Margin enhancement activities like cost-savings initiatives and securing higher rates as existing PPAs expire could add another 2% to 4% to its bottom line each year. 
  • Development pipeline: Investing $200 million to $350 million of equity per year to build out 450-700 megawatts (MW) from its vast development pipeline could add an incremental 3% to 5% to its annual FFO. 

On top of that, Brookfield anticipates deploying up to $1.5 billion of equity per year on acquisition opportunities. That investment level could boost its FFO per share by an additional 9% per year. 

Add it all up, and Brookfield could grow its FFO per share by as much as 20% each year. That should easily support its plan of increasing its 3%-yielding dividend by a 5% to 9% annual rate, making it one of the best renewable energy dividend stocks around. The combination of its attractive dividend yield and its supercharged FFO per-share growth could power total annual returns well in excess of 20% over the next several years.

The case for buying NextEra Energy

NextEra Energy has also done an exceptional job growing shareholder value over the years. For example, since 2005, the utility has increased its adjusted earnings per share at an 8.7% compound annual rate. That's helped fuel a 9.6% compound annual growth rate in its dividend during that time frame.

Like Brookfield, NextEra has delivered above-average earnings and dividend growth by making a steady stream of value-enhancing acquisitions. It has also routinely invested in high-return development projects. Those dual growth drivers enabled it to build out the world's largest wind and solar energy business.

The company currently has an extensive backlog of development projects. That gives it clear visibility on future earnings growth. It estimates it can grow adjusted earnings per share at a 6% to 8% annual rate through at least 2023, though it anticipates delivering growth near the top end of that range.

That, along with its below-average dividend payout ratio, should enable NextEra to grow its 2.1%-yielding dividend by around a 10% yearly rate through at least 2022. This forecast suggests NextEra could produce total annual returns in the low double digits over the next few years.

Supercharged growth ahead

Brookfield and NextEra expect to generate healthy earnings and dividend growth over the next few years. However, Brookfield is on track to grow faster, especially if it successfully hits its acquisition target. Because of that, it looks like the better renewable energy stock to buy for the long term.

Matthew DiLallo owns shares of Brookfield Renewable Corporation Inc., Brookfield Renewable Partners L.P., and NextEra Energy. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$39.69 (-0.33%) $0.13
NextEra Energy, Inc. Stock Quote
NextEra Energy, Inc.
$89.79 (0.40%) $0.36
Brookfield Renewable Corporation Inc. Stock Quote
Brookfield Renewable Corporation Inc.
$41.72 (-0.67%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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