If 2021 was a tough year for renewable energy stocks, 2022 could look very different. The rally in oil prices has brought the focus back on renewable energy stocks as investors believe high energy prices will compel companies that run on fossil fuels to look for cheaper, and cleaner, alternatives. For investors, that also means there's still time to buy some renewable energy stocks while they're still cheap. Among all of the names out there, here's why NextEra Energy Partners (NEP 4.77%) and Brookfield Renewable Partners (BEP 2.85%) are two top stocks to consider.
This dividend growth stock could help you build a fortune
Neha Chamaria (Brookfield Renewable Partners): Brookfield Renewable Partners stock is finally showing some signs of life after languishing in 2021, but there's tremendous upside potential left in the stock at current prices.
Brookfield Renewable shares were hit hard last year alongside other renewable energy and growth stocks. What the market didn't seem to realize was how strong the company was positioned and how rapidly it was growing. For example, Brookfield Renewable generated record funds from operations (FFO) in its third quarter, but the market paid no heed. I strongly believed it deserved better and even picked Brookfield Renewable as the only stock I'd buy in 2022 -- if I had to pick one.
The market, though, is finally sitting up and taking notice what with Brookfield Renewable delivering yet another record quarter in early February. The company ended 2021 with record FFO per unit and a massive global-development pipeline of nearly 62 gigawatts (GW). Of that, 15 GW is already under construction or in late-stage development. The company's renewable generation assets are diversified across hydropower, solar, wind, storage, and green hydrogen across 14 countries.
Brookfield Renewable's total pipeline is, in fact, almost three times the size of its existing operational capacity, and it is this pipeline that should set Brookfield Renewable on the next growth path.
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For now, the company expects to grow FFO per unit by 10% or more through 2026. This growth will be driven primarily by its development pipeline and potential acquisition opportunities. That should translate into regular annual-dividend increases which could be as high as 9% each year. Now combine that with Brookfield Renewable's dividend yield of 3.4% and the potential gains from reinvesting those dividends, and you could well be on your way to making a fortune if you add this renewable dividend growth stock to your portfolio.
An irresistible combination of yield and growth
Rekha Khandelwal (NextEra Energy Partners): NextEra Energy Partners' stock was falling continuously this year. By the end of February, its yield had risen to levels not seen in one year. The stock has gained some ground since, but it's still down about 6.5% year to date as of this writing. While the yield on this fast-growing renewable energy utility stock has now dipped below its three-year average of 3.6%, it's still above one year's average yield of 3.3%.
The recent correction in renewable energy stocks due to concerns relating to overvaluation and rising interest rates has contributed to the fall in NextEra Energy Partners' stock. However, the company's fundamentals remain rock-solid.
For the year 2021, NextEra Energy Partners reported cash available for distribution (CAFD) of $584 million, which was 2% higher than in 2020. The growth was driven by the company's existing portfolio of assets as well as contribution from assets acquired during the year.
Moreover, NextEra Energy Partners increased its year-end 2021 run-rate expectations for CAFD from its earlier guidance. The run-rate expectations reflect calendar-year 2022 expectations for the portfolio at year-end 2021. NextEra Energy Partners' cash flows are backed by long-term contracts, allowing it to generate predictable and stable cash flows.
NextEra Energy Partners has certain key advantages over its competitors. To begin with, it is backed by a top utility, NextEra Energy (NEE 1.36%). NextEra Energy has a huge and diversified portfolio of renewable energy assets, and it's been in the renewables business for more than 30 years. The company benefits significantly from economies of scale and a rich experience, something that other smaller renewable energy operators lack. NextEra Energy's investment-grade balance sheet helps it raise funds at comparatively lower costs than its smaller peers.
NextEra Energy Partners announced a distribution of $0.71 for the fourth quarter, which represents a sequential increase of 3.3%. On an annualized basis, the Q4 distribution grew 15% year over year. NextEra Energy Partners expects a 12% to 15% per-year growth in its distributions through 2024. All in all, this is one renewable energy that you would surely want to buy right away.
Big winners in the making
One thing's clear by now: Both Brookfield Renewable and NextEra Energy Partners have built a solid foundation for themselves in the lucrative renewable-energy space and are growing at a rapid pace. The best part is that both companies are also committed to shareholder returns as evidenced in their dividend growth. Getting a steady and rising stream of income from stocks in a high-potential industry is a potent combination and could go a long way toward helping you build a fortune, especially if you can pick the stocks for a bargain.
