If you are looking at the energy sector you have to balance today's energy needs with the world's goal of a vastly different energy future. The plan should be to create a portfolio of companies that can profit today, provide investors tangible rewards, and prepare for the changes taking shape in the broader energy sector all at the same time. That's not as crazy as it sounds. Indeed, right now it looks like Chevron (CVX 0.57%), Enbridge (ENB 0.20%), and Brookfield Renewable Corporation (BEPC 2.75%) are all capable of doing just that. If you have $10,000 burning a hole in your pocket, make sure you check out this trio of industry-leading names.
1. The power to change
Chevron is one of the largest integrated energy companies on Earth, competing with Shell, BP, and Exxon. However, it happens to have the cleanest balance sheet of its peer group, with a debt-to-equity ratio of just 0.22 times. This is important because financial flexibility provides business flexibility.
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For example, during 2020 when oil prices were plunging, Chevron was able to increase its dividend and invest in its business because it leaned on its balance sheet to create a cash cushion. The strength didn't end there; Chevron used the industry downturn to buy Noble Energyu, ensuring it came out the other side a stronger company. Chevron tends to have more exposure to oil drilling than its peers, so the oil rebound has been very rewarding. But what should really interest investors is that it just agreed to buy Renewable Energy Group. Like the Noble Energy deal before, Renewable Energy Group's stock was tumbling before Chevron stepped in.
That means Chevron opportunistically added some clean energy credentials to its portfolio at what appears to be a cheap price. The strong financial foundation and the now-proven willingness to invest in clean energy bodes well for the future as Chevron benefits today from strong oil prices.
2. Already on it
Next up is Enbridge, which owns a huge collection of oil and natural gas assets. Unlike Chevron, where the top line is highly reliant on oil prices, most of Enbridge's business is regulated or contract-based. Basically, it gets paid fees for the use of the midstream energy infrastructure (such as pipelines) it owns, with demand the more important factor than commodity price variations. The current geopolitical tensions show just how vital oil and natural gas are to the world and it can't move freely without a company like Enbridge. Together all of Enbridge's carbon fuel based assets account for 96% of its earnings before interest, taxes, depreciation, and amortization (EBITDA). That's a reliable foundation that will likely spit out cash for years to come.
What's more interesting about Enbridge is the remaining 4% of EBITDA. This relatively modest figure is attached to the company's renewable power division. Basically, the pipeline company is using its cash-cow carbon operations to invest in clean energy. Of note, 4% of its business is scheduled to account for roughly a third of its capital investment plans over the next few years. That's mostly for a trio of offshore wind farms in Europe that will massively increase the company's clean energy capacity. This division is small today, but it probably won't be for long.
While oil and natural gas will remain the main drivers here for years to come, the material investments Enbridge is making today position well for the transition that is taking place in the power sector.
3. Jumping in with both feet
If you'd like to get a little more ESG flavor in your portfolio, then you should consider adding Brookfield Renewable Corporation to the mix. The company rounds out this with a focus on clean energy. But it does so in an important way. Specifically, hydroelectric power assets account for about half of the company's business. Hydro provides reliable base-load power, which makes it a solid foundation for the company's growth investments in things like solar, wind, and battery storage (which make up the rest of its cash flows). And, on top of that, Brookfield Renewable Corporation has investments across the globe, so it is diversified by both power source (with a solid foundation in reliable hydro) and geography.
That's a characteristic an investor in an emerging sector, like renewable power, should appreciate. But don't forget about the investment pipeline, which is currently slated to add a massive 61.5 gigawatts of capacity to the company's current capacity of 21 gigawatts. Huge growth potential on top of a solid, diversified foundation: What's not to like about that?
Put it all together
You could buy any one of the names above for the reasons noted. But, with $10,000, why limit yourself to just one? In fact, putting all three together gives you a great mix of investments that will benefit today from commodity price increases, the ongoing demand for carbon fuels, and the increasing use of clean power. And even Chevron and Enbridge let you hedge your bets a little thanks to their moves to add a little green to their portfolios -- which is exactly why they can be long-term holds along with clean energy-focused Brookfield Renewable Corporation. Investors willing to step aboard, meanwhile, will get paid well to stick around, with Chevron's dividend yield at around 3.4%, Brookfield Renewable Corporation's at 2.9%, and Enbridge's at a heady 5.8%.
