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3 Top Energy Stocks Ready for a Bull Run

By Matthew DiLallo – Dec 18, 2021 at 11:15AM

Key Points

  • Brookfield Renewable sees high-powered cash flow growth ahead.
  • Clearway Energy is about to receive a big cash infusion to supercharge its growth.
  • NextEra Energy sees high-end growth in the near term, with big-time upside as new energy sources emerge.

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The renewable-energy supercycle is about to shift into high gear.

Decarbonization might be one of the biggest megatrends of our lifetime. To blunt the impact of climate change, the global economy needs to invest more than $150 trillion to reduce carbon emissions over the next three decades. One of the big beneficiaries of this decarbonization trend is the renewable-energy industry.

Three top-tier energy stocks ready for this bull run are Brookfield Renewable (BEPC 2.70%) (BEP 0.96%), Clearway Energy (CWEN 1.29%) (CWEN.A), and NextEra Energy (NEE 0.64%).

A bull with a financial chart in the background.

Image source: Getty Images.

The decarbonization partner of choice

Brookfield Renewable is one of the world's largest producers of renewable energy. It operates a globally and technologically diversified portfolio consisting of hydroelectric, wind, solar, and storage facilities across North and South America, Europe, and Asia. The company sells the bulk of the power these assets produce to end users like utilities and large corporations under fixed-rate contracts. That supplies it with steady cash flow to support its dividend, now yielding 3.6%.

Brookfield Renewable estimates that it can grow its cash flow per share by up to 20% annually over the next five years. One growth driver is its massive development pipeline. It currently has 36 gigawatts of renewable-energy assets under development, enough to power 7 million homes for one year.

The company has been leveraging that backlog to help companies achieve their decarbonization goals. For example, Brookfield recently partnered with e-commerce giant Amazon (AMZN 1.26%) to develop new renewable-energy projects and work together on additional green-energy opportunities. Brookfield has also partnered with companies on mergers and acquisitions (M&A), investing alongside Apple's (AAPL 1.56%) China Clean Energy Fund to acquire wind assets in China that can help the tech giant and its suppliers decarbonize. With lots of liquidity to keep growing, Brookfield could produce high-powered total returns over the coming years.

A heaping dose of financial flexibility

Clearway Energy is one of the largest renewable-energy owners in the U.S. It also has a portfolio of environmentally sound natural gas power assets. Like Brookfield, Clearway sells the power it produces under long-term contracts, supplying it with steady cash flow to support its dividend, currently yielding 3.9%.

The company recently bolstered its long-term growth forecast. It's now hoping to grow its dividend toward the upper end of its 5% to 8% annual growth objective through 2026.

One factor driving its accelerating growth is the pending sale of its thermal assets. It will receive $1.3 billion in net cash, giving it the funds to expand its renewable-energy portfolio. It already has $620 million of new investments lined up, providing near-term growth visibility. Meanwhile, it should have ample opportunities to invest the balance, given the capital needed to decarbonize the global economy.

The renewable-energy behemoth

NextEra Energy is Florida's largest electric utility. It also owns a vast portfolio of renewable-energy assets that combine to make it one of the largest producers of energy from wind and sun.

The company is investing billions of dollars to extend its lead. These investments have it on track to grow earnings per share at or near the top end of its 6% to 8% annual target rate through 2023. Meanwhile, it expects to grow its dividend (which has a current yield of 1.7%) by around 10% annually through at least 2022.

NextEra Energy is leveraging its leadership in wind, solar, and battery storage to tap into emerging power sources. It believes "green hydrogen" holds a lot of promise; this emissions-free fuel source uses renewable energy to turn water into oxygen and hydrogen. The company is already working on some pilot projects. If they prove commercially viable, green hydrogen could supercharge NextEra Energy's long-term growth rate.

Powerful growth ahead

Renewable energy appears poised for a multidecade bull run as the global economy races to decarbonize. That should help to fuel growth for industry leaders like Brookfield Renewable, Clearway Energy, and NextEra Energy, setting them up to potentially produce powerful total returns. That makes them stand out as some of the top energy stocks to buy as renewable-energy investing accelerates.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew DiLallo owns Amazon, Apple, Brookfield Renewable Corporation, Brookfield Renewable Partners L.P., Clearway Energy, and NextEra Energy and has the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple.

The Motley Fool owns and recommends Amazon, Apple, and Brookfield Renewable Corporation. The Motley Fool recommends NextEra Energy and recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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