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Our Favorite Energy Stock Picks for 2022 and Beyond

Key Points

  • Enbridge's steady business positions it to continue growing its high-yielding dividend.
  • Brookfield Renewable looks like an attractive buy following this-year's decline, especially considering its long-term growth prospects.
  • NextEra Energy Partners plans to deliver high-powered dividend growth through 2024.

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These energy stocks are well-positioned to grow amid the sector's current transition.

The energy industry is facing an uncertain future. While the world economy still needs fossil fuels, it's quickly shifting to cleaner energy sources. That transition makes it hard to determine the best places to invest in the coming years. 

We asked three Motley Fool contributors for their favorite energy-stock picks for 2022 and beyond. They highlighted Enbridge (ENB 0.18%), Brookfield Renewable (BEP 0.96%) (BEPC 2.70%), and NextEra Energy Partners (NEP 4.83%). Here's why they're so optimistic about their futures. 

A man in a green field with wind turbines in the background.

Image source: Getty Images.

If I had to pick just one

Reuben Gregg Brewer (Enbridge): I own two oil names, TotalEnergies and Enbridge, and plan to hold both for years to come. However, if I had to pick just one, I'd probably go with North American midstream-giant Enbridge. There's a couple of reasons why, but the most notable is that it operates a largely fee-based business that essentially collects tolls based on the use of its assets. That means the price of oil and natural gas are less important than demand for these vital global fuels. It's a pretty consistent business.

Also, Enbridge has a roughly 7% dividend yield backed by more than 25 years worth of annual dividend increases (that's Dividend Aristocrat territory). There's no particular reason to expect that streak to end, either, given that the company just provided financial guidance that calls for distributable cash flow growth of 5% to 7% a year through at least 2024. It also increased the dividend, again, and announced a large share buyback.

ENB Chart

ENB data by YCharts.

On top of all of this, Enbridge is also building out a clean-energy business. It's small today (about 3% of adjusted earnings before interest, taxes, depreciation, and amortization), but there's decades to go before carbon fuels are displaced by clean energy. So the company has plenty of time to expand this division with its current wind-power investments and future-thinking tech, like carbon capture.

The best part of the story, however, is that Enbridge is basically using its oil profits to fund its clean-energy transition, which, to my thinking, is a great compromise between the needs of today and the clean-energy of tomorrow.

An undervalued renewable energy stock

Neha Chamaria (Brookfield Renewable): As we near 2022, there's one prediction I can confidently make for the year: Renewable energy will attract the attention of more leaders and nations, and the share of alternative fuels in global-electricity capacity and generation will continue to rise. Based on this idea, I'd pick Brookfield Renewable as my favorite energy pick for 2022 and beyond, especially after the stock's 21% drop so far this year.

Brookfield Renewable is entering 2022 on solid footing, having generated record funds from operations (FFO) in its third quarter. By the end of the third quarter, Brookfield Renewable had invested nearly $2.4 billion on growth, spread across solar, wind, hydropower, and green hydrogen. Green hydrogen is, in fact, a relatively new area the company is venturing into as it sees significant potential in the space.

Even beyond 2022, Brookfield Renewable has solid growth potential as it sees FFO per share rising nearly 20% on the higher side through 2025 if it can continue to find lucrative acquisition opportunities. As its FFO grows, so should its dividend, as Brookfield Renewable isn't just committed to paying a sustainable dividend but aims to grow it annually by 5% to 9%. Brookfield Renewable Partners shares are also yielding a solid 3.5% right now, so it's a compelling energy stock to own.

High-powered dividend growth ahead

Matt DiLallo (NextEra Energy Partners): NextEra Energy Partners stands out for its dividend-growth forecast. It plans to expand its above-average dividend (currently yielding 3.2%) at a 12% to 15% annual rate through at least 2024. That's one of the fastest-growing income streams in the energy patch.

Two factors help power the company's plan. First, it has a vast acquisition-opportunity set. Its parent company, giant utility NextEra Energy (NEE 0.64%), has a massive portfolio of operating renewable-energy assets and an equally large pipeline of development projects. Because of that, NextEra Energy Partners should be able to complete a steady stream of drop-down transactions to help grow its cash flow and dividend. In addition, it can continue purchasing assets from third parties. 

The company recently secured deals from both sources. It agreed to buy a 100-megawatt wind farm in California from a third party and acquire a 50% interest in a 2.52-gigawatt renewable-energy portfolio from NextEra.

Meanwhile, the company has ample funding capacity. Private-equity funds have provided it with a steady stream of convertible equity portfolio financing to help it close acquisitions. For example, Apollo Global Management provided one to support its latest drop-down deal. That's one of several financing levers it can pull to close deals.  

NextEra Energy Partners believes its combination of an attractive yield and robust dividend growth will drive high-powered total returns of up 15% to 18% per year through at least 2024. That potential for high returns makes it stand out as a great energy stock to buy for the long haul.  

Matthew DiLallo owns Brookfield Renewable Corporation Inc., Brookfield Renewable Partners L.P., Enbridge, NextEra Energy, and NextEra Energy Partners. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer owns Enbridge and TotalEnergies. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc. and Enbridge. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.

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