2021 was a great year for the market, but when looking at stocks across the market today it's hard not to feel like values are stretched. Fortunately there are still relatively stable companies with long-term cash flows and steady dividends available for patient investors.
Three Motley Fool contributors have chosen their top low-stress renewable energy stocks for 2022, and they are Clearway Energy (CWEN 1.29%), Brookfield Renewable (BEPC 0.81%), and NextEra Energy (NEP 0.26%). They all come with great dividends to go along with strong operations.
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The original yieldco
Travis Hoium (Clearway Energy): Financing renewable energy projects is one of the most challenging parts of the supply chain because it takes hundreds of millions and sometimes billions of dollars, depending on the project. That's why the yieldco, a company that buys renewable energy projects and pays dividends with proceeds, was formed. Clearway Energy, originally started as NRG Energy, is one of the leaders in this space with a long operating history.
Clearway currently owns 1.3 gigawatts (GW) of solar projects, 3.5 GW of wind assets, 320 megawatts of community solar assets, and has another 5 GW of projects that it operates or manages. These assets generate cash flow that fuels a 4.2% dividend yield for investors.
You can see above that cash flow from operations is growing, and that should continue. Clearway just sold its thermal energy business to KKR for net proceeds of $1.3 billion and is investing heavily in energy storage projects attached to renewable energy generating assets, like solar farms. Energy storage is a growth industry for renewable energy and this will help keep the company growing long term.
Let the experts handle it
Howard Smith (Brookfield Renewable): Some investors who want to own renewable energy stocks don't want the high valuations and volatility that come with many electric vehicle names or alternative energy start-ups. One place to turn where you can let the experts effectively allocate your capital is Brookfield Renewable. And the stock has come down 37% in 2021, giving investors a good opportunity.
That decrease in share price has resulted in a dividend yield that pays investors more than 3.3% annually. This income stream also helps alleviate any stress associated with the stock's price movements.
Brookfield Renewable invests in wind, solar, and hydroelectric generation assets as well as energy storage facilities. Decarbonization is a global trend, and Brookfield holds assets in North America, South America, Europe, and Asia, offering geographic diversity as well. As that trend grows, more and more companies will look to join power purchase agreements to contract renewable energy sources to power their operations. Holders of those assets like Brookfield Renewable stand to benefit.
The company's recent financial results show that the trend is already underway. Last month, Brookfield Renewable reported record third-quarter funds from operations of $210 million. That represented a 32% jump versus the prior-year period. CEO Connor Teskey summed it up in this statement: "As decarbonization of the global economy continues to move to the forefront, we are well-positioned to capture the growing opportunity while earning strong returns for our investors." Investors can take it easy letting this management group do the tough work.
NextEra continues to shine in a challenging market
Daniel Foelber (NextEra Energy): Investing in growth has the reputation of being a high-risk, high-reward endeavor that could lead to some sleepless nights. Yet there's a way to invest in the energy transition without stressing yourself out. One way is through a catch-all infrastructure play like Brookfield Renewable. I agree with Howard that it's a balanced company worth owning over the long term. A company with a similar investment thesis is NextEra Energy.
Like Brookfield Renewable, it pays a stable and growing dividend. And also like Brookfield Renewable, it's been in growth mode. NextEra's competitive advantage is timing, in that it began quickly expanding its solar and wind energy capacity faster than its peers. This head start has helped NextEra and its subsidiaries command an industry-leading position as a diversified utility. Between 2017 and 2020, NextEra Energy increased its total net generation capacity by about 20%, but solar and wind net generation capacity increased by 40% over that four-year time frame.
The market has responded favorably to NextEra Energy's ambitious growth plans.
NEE Total Return Level data by YCharts
Its stock is currently hovering around an all-time high and has crushed the S&P 500 and the utility sector over the last five years, all the while growing its dividend at a faster rate than the sector. NextEra isn't cheap, but it's the undisputed king of investing in utility-scale renewable energy projects. In this sense, its premium valuation and 1.7% dividend yield are worth the price.
Three dividend stocks to buy today
All three of these stocks pay a healthy and growing dividend, and as renewable energy production grows they should grow as well. And with long-term contracts to sell renewable electricity to utilities and users, these stocks will also help you sleep at night in a volatile market.
