ExxonMobil (XOM 0.45%) has dominated the energy landscape over the years. It was in the elite class of energy supermajors because of its global scale, integrated operations, and balance sheet strength. However, with the global economy pivoting toward lower carbon energy sources, Exxon faces significant future uncertainty.
Because of that, investors should forget about Exxon and turn their attention to companies that are focusing on the future of the energy market. Three future-focused energy stocks that investors won't want to miss are Shell (SHEL -0.52%), Brookfield Renewable (BEPC -1.15%) (BEP -0.41%), and NextEra Energy (NEE 0.52%).
Changing now while there's plenty of cash flow
Reuben Gregg Brewer (Shell): ExxonMobil is not a bad oil and natural gas company, but it is dragging its feet when it comes to the clean energy transition. That's why investors might want to take a closer look at peer Shell, which is also one of the world's largest integrated energy companies. But it is taking a far more aggressive approach to the shifting trends within the industry.
Notably, at the start of 2020, Shell cut its dividend and announced plans to trim down its oil business in favor of cleaner burning natural gas and a more aggressive push into renewables, like solar and wind, among other things. Some dividend investors might look askance at that dividend cut, but management made clear that it was resetting the business and would quickly get back to regular dividend increases. It has lived up to that promise, and the dividend, though lower, is on much firmer ground than it was before the cut.
That said, the real story here is that Shell is taking the strong cash flows it is still generating in the oil and natural gas space (thanks to the rebound in energy prices) and using them to invest in its future. That future will have to include clean energy if the company wants to survive over the very long term. Although it looks like a fairly aggressive effort today, the truth is that Shell is really moving incrementally by building a new business over time. For conservative long-term investors who prefer slow and steady, that's a pretty solid plan.
The new energy supermajor
Matt DiLallo (Brookfield Renewable): Brookfield Renewable is emerging as a global clean energy supermajor. In a sense, it's replicating what made Exxon great -- worldwide scale and reach, leadership across all major categories, leading operating and development capabilities, and a top-notch balance sheet -- but focusing on clean energy. Because of that, it's becoming a must-own energy stock for the future.
Brookfield stands out for its leading platforms across all major clean energy technologies. It's one of the largest hydroelectric producers worldwide and has large-scale wind energy, solar energy, and energy transition operations. Because of that, it's becoming the partner of choice for organizations seeking to decarbonize their operations. Companies are increasingly turning to Brookfield to supply them with clean energy to support their climate goals.
The company is also leveraging its leadership to take an active role in helping companies transition to cleaner energy sources. For example, Brookfield and its partners offered to privatize Australia's AGL Energy (AGL 1.81%). A deal would have enabled AGL to accelerate the replacement of its thermal energy fleet with clean energy and storage assets. While AGL rejected its proposal, Brookfield and its partners see a target-rich environment for companies needing to transition.
Brookfield believes its global clean energy strategy will create tremendous value for investors in the coming years. It sees up to 20% annual cash flow per-share growth, which should support 5% to 9% annual increases in its 3.4%-yielding dividend. With Exxon's growth potential uncertain given the energy transition, Brookfield could significantly outperform its stock in the coming years.
Driving the clean energy megatrend
Neha Chamaria (NextEra Energy): There's no denying that clean energy is the future of energy, and while I expect an oil giant like ExxonMobil that's been around for more than a century to survive, it may have to transition majorly to clean energy to thrive. So instead of ExxonMobil, consider investing in first-mover companies already making strides in the renewable energy space. That's what NextEra Energy is doing.
NextEra, in fact, is doing what Exxon did: Become an industry leader and prioritize shareholder returns along the way. So if Exxon became one of the world's largest petroleum and chemical manufacturing companies, NextEra is one of the world's largest renewable energy companies and, in fact, the largest producer of wind and solar energy.
NextEra also aspires to be the world's largest and most profitable clean energy provider. It expects to build up to 30 gigawatts of capacity between 2021 and 2024, which is almost equal to its existing clean energy capacity in operation.
And, since its inception in 2006, NextEra has grown its dividend at a compound annual growth rate (CAGR) of 9.8%. In other words, NextEra is also a solid dividend growth stock like Exxon.
NextEra just delivered strong numbers for its first quarter and reiterated its outlook of adjusted earnings-per-share growth of 6% to 8% between 2023 and 2025 off its 2022 base, driven by its solid development pipeline. With the company also expecting to grow its dividend by around 10% every year through "at least" 2024, NextEra Energy is the kind of energy stock you'd want to own now.