Global energy markets are undergoing an unprecedented transition. The economy is switching fuel sources, ditching carbon-emitting and climate change-causing fossil fuels for cleaner alternative energy sources like renewables.
This energy transition won't happen overnight. It will take decades and trillions of dollars of investment to decarbonize the economy. That means investors need to have a long-term mindset. They should also look for leaders best positioned to grow in the coming years.
Three companies leading the charge in developing clean energy infrastructure are Brookfield Renewable (BEPC -0.09%) (BEP), Enbridge (ENB 0.68%), and NextEra Energy (NEE 0.54%). That makes them stand out as some of the top energy stocks to buy for the long haul.
Image source: Getty Images.
A leader in renewable energy
Brookfield Renewable operates one of the largest renewable energy platforms on the planet. It owns hydroelectric, wind, solar, and energy storage facilities across North and South America, Europe, and Asia.
Those renewable energy generating facilities produce predictable power supplies that Brookfield sells to utilities and large corporate customers under long-term, fixed-rate power purchase agreements (PPA).
Those contracts supply it with steady cash flow. Brookfield distributes most of its cash flow to investors through a dividend that currently yields 3.7%. It reinvests the rest in expanding its renewable energy portfolio.
The company has built up a vast pipeline of renewable energy projects to develop in the coming years. It entered 2022 with 36 gigawatts of projects in the backlog, enough to power 7 million homes for a year. Combined with higher power prices, this backlog should help fuel 6% to 11% of annual cash flow per share growth through 2025.
In addition, Brookfield sees up to 9% of additional cash flow per share growth as it continues making value-enhancing acquisitions. Add all that growth to its dividend -- which it expects to increase by 5% to 9% per year -- and Brookfield could produce powerful total returns in 2022 and beyond.
Slowly transitioning to the fuels of the future
Enbridge is one of the largest energy infrastructure companies in North America. Its oil pipelines transport 30% of all the oil produced on the continent. Meanwhile, its natural gas pipelines move about 20% of all the gas consumed in the U.S. In addition, Enbridge operates natural gas utilities and renewable energy assets. Backed by long-term contracts, these businesses generate very stable income for Enbridge.
Currently, fossil fuels supply the bulk of Enbridge's income. However, the company has been slowly pivoting toward cleaner energy sources like natural gas and renewables over the years. This balance makes it an excellent energy transition stock. Its legacy assets are generating cash that Enbridge is using to pay an attractive dividend – it currently yields 6.3% -- and reinvest into cleaner energy infrastructure projects.
Enbridge believes that its investments will support 5% to 7% annual cash flow per share growth through at least 2024. The company has a large pipeline of clean energy infrastructure projects like natural gas pipelines and offshore wind farms in Europe to drive growth in the near term. Meanwhile, it's investing in emerging clean energy projects like hydrogen and carbon capture and storage, which could be major growth drivers in the future. That positions Enbridge to deliver steadily rising income and returns for investors in the coming years.
A high-powered utility stock
NextEra Energy is a leader in clean energy. It operates one of the cleanest electric utilities in the country, Florida Power & Light, and a leading energy production and infrastructure business, NextEra Energy Resources. Overall, it's one of the world's largest energy producers from the wind and sun. It's also a leader in battery storage.
NextEra has an enormous pipeline of wind, solar, and battery storage projects that it expects to develop over the coming years. These investments should give it the power to grow its adjusted earnings per share by about 10% this year. Meanwhile, it sees earnings growth at or near the upper end of its 6% to 8% long-term target range through 2025.
That should drive continued growth in NextEra's 2%-yielding dividend. This year, it sees around 10% dividend growth, with future increases likely to track earnings growth. This earnings and dividend growth should help NextEra continue generating strong total returns.
Great energy stocks to buy for the transition
The energy industry is in the midst of a multidecade transition toward cleaner fuel sources, so it needs to invest billions of dollars each year on new clean energy infrastructure. That should power steady growth for leading companies like Brookfield Renewable, Enbridge, and NextEra Energy. That makes them stand out as the top energy stocks to buy for the long term.
