Growth stocks need plenty of fuel to continue expanding. That means having access to ample capital to fund a steady supply of high-return investments.
Few sectors offer the growth potential of renewable energy. Companies need to invest trillions of dollars over the next three decades to transition the economy's fuel source away from fossil fuels to cleaner alternatives. As leaders in that sector, Brookfield Renewable (BEPC 2.23%) (BEP 2.47%) and NextEra Energy (NEE 2.17%) seem unstoppable. Because of that, they should be able to continue generating market-beating returns over the next 10 years.
Unstoppable growth ahead
Brookfield Renewable has been unstoppable over the years. The leading global renewable energy producer has delivered 17% total annualized returns since its formation two decades ago. That has vastly outperformed the S&P 500's 7% total annualized return during that period.
Several factors have helped power Brookfield's returns. It has grown its funds from operations (FFO) per share at a double-digit annual pace over the last decade, driven by its ability to make value-accretive acquisitions and invest in high-return development projects. That's allowed the company to grow its dividend at a 6% annual rate since its formation.
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Brookfield doesn't see anything stopping it from expanding in the coming years. The company has a vast and growing backlog of renewable energy development projects. It recently had 62 gigawatts (GW) of projects in its pipeline, nearly three times its current 21 GW operating portfolio.
Combined with higher power prices and falling costs as Brookfield increases its scale, those high-return development projects should help power 6% to 11% FFO per-share growth through at least 2026. On top of that, Brookfield sees acquisitions helping fuel up to 9% of additional FFO per-share growth each year. It has a long history of making value-enhancing deals and sees an enormous opportunity ahead.
Meanwhile, the company has plenty of financial flexibility to continue growing. It has a strong investment-grade balance sheet and ample liquidity to fund new investments. Those factors should give Brookfield the power to raise its 3%-yielding dividend by 5% to 9% per year. Add that income to its growth prospects, and Brookfield should have plenty of fuel to continue producing market-beating total returns.
An unstoppable value creator
NextEra Energy has been an exceptional value creator over the years. The utility has significantly outperformed the S&P 500 and other large utility stocks over the last three-, five-, 10-, and 15-year periods. For example, since 2006, NextEra has generated a cumulative total return approaching 1,000%, nearly three times more than the S&P 500.
Powering the company's strong returns has been its unstoppable growth. NextEra has grown its adjusted earnings per share at an 8.4% compound annual rate since 2006. Meanwhile, it has increased its dividend at a 9.8% compound annual rate during that time frame.
The company has grown by expanding its Florida-based electric utility and developing a world-leading renewable energy business. It's currently the largest wind energy producer in North America and a leading solar energy producer.
NextEra doesn't expect that growth to stop anytime soon. It currently expects to grow its earnings by another 10% this year and close to 8% annually from 2023 through 2025. Meanwhile, thanks to its conservative dividend payout ratio, it expects to increase its 2%-yielding dividend by about 10% per year through 2024. The company has an extensive backlog of utility expansions, wind and solar-energy development projects, battery-storage additions, and hydrogen-energy pilot projects to continue growing earnings at a healthy rate in the coming years.
Meanwhile, the company has the top-notch financial profile needed to continue financing its expansion. In addition to its conservative dividend payout ratio, it has one of the highest credit ratings in the utility sector. Because of all this, NextEra Energy should be able to continue delivering market-beating total returns in the decade ahead.
Powerful growth stocks
Brookfield Renewable and NextEra Energy are benefiting from a nearly unstoppable growth trend in renewable energy. Because of that, they have plenty of investment opportunities to continue expanding their operations and earnings. Add in their top-notch financial profiles, and these stocks have what's needed to continue delivering market-beating total returns in the coming years.
