The transition to more environmentally friendly green energy sources is a massive investing megatrend. The global economy needs to invest more than $150 trillion over the next 30 years to move from fossil fuels to cleaner energy sources. This investment opportunity could make investors a lot of green.
One way to collect a steady stream of green is to invest in renewable energy yieldcos. These companies generate recurring cash flow by operating renewable energy assets, the bulk of which they distribute to investors via dividends. Two renewable energy income-generating machines are Atlantica Sustainable Infrastructure (AY -0.18%) and Clearway Energy (CWEN 0.12%) (CWEN.A -1.40%).
A growing green income stream
As the name implies, Atlantica Sustainable Infrastructure focuses on owning environmentally sustainable infrastructure assets like renewable energy generating facilities, water desalination plants, electric transmission lines, and cleaner-burning natural gas power plants. These assets generate relatively predictable cash flow backed by long-term contracts and government-regulated rate structures. That gives Atlantica the funds to pay an attractive 5.7%-yielding dividend.
The company has steadily grown that payout by expanding its sustainable infrastructure portfolio. It invested $480 million last year across several renewable energy transactions, including buying a wind energy portfolio in the U.S., solar energy projects in Italy and Colombia, and a geothermal plant in the U.S. Meanwhile, it has already committed to invest up to $120 million this year across several more solar energy projects.
Atlantica is targeting to invest at least $300 million per year in renewable energy and other sustainable infrastructure projects. This investment rate should grow its cash available for distribution by 5% to 8% per year. That will enable the company to continue growing its high-yielding dividend. On top of that green income stream, investors should also benefit from a steadily rising stock price, adding to their returns.
A clean-powered income stream
Clearway Energy focuses on producing cleaner electricity from wind, solar, and natural gas power plants. It sells this energy under long-term contracts to end users like utilities. That enables it to generate relatively stable cash flow to support its 4.3%-yielding dividend.
The company has also steadily increased its payout by expanding its portfolio, primarily through acquisitions. It invested $820 million across a range of transactions last year, including purchasing projects developed by its sponsor Clearway Energy Group (CEG). These deals help support Clearway's target to grow its dividend by 5% to 8% per year.
The company believes it can deliver dividend growth toward the high end of that target range through at least 2026. One key power source is the upcoming sale of its thermal business. It will receive $1.35 billion in net proceeds, giving it the cash to reinvest in higher-returning opportunities. It already has $600 million in deals lined up. That leaves it with $750 million to allocate toward future acquisitions.
Given CEG's vast development project pipeline, Clearway should have plenty of options. CEG has 19 gigawatts (GW) of renewable energy projects in its backlog, including 2 GW that it plans to start building this year. That's a sizable opportunity set for Clearway, considering its current portfolio size of 9 GWs.
Clearway Energy isn't limited to drop-down transactions with its sponsor. It can also pursue third-party opportunities. The company has made several in the past couple of years and has the funding capacity to pursue attractive outside opportunities as they arise.
Clearway Energy offers investors a high-powered dividend that should generate a lot of green in the coming years. Add in the potential appreciation in its stock price, and Clearway could be a big-time green investment.
Making green by going green
The green energy transition represents an enormous opportunity for investors. While there are many ways to potentially make some green, renewable energy yieldcos like Atlantica and Clearway provide investors with a steadily growing passive income stream to go along with potential stock price appreciation. That could have their investors seeing a lot of green in their future.