Like its European peers BP and Shell, TotalEnergies (TTE +0.00%) announced big plans to green up its portfolio in 2020. What set TotalEnergies apart from these two competitors, however, was that it made a bold commitment to a cleaner future without cutting its dividend. For investors looking to benefit from the continued demand for carbon fuels while increasing exposure to cleaner alternatives, TotalEnergies could be a great option. Some of its recent portfolio moves explain why.
The big goal
In 2020, TotalEnergies announced it wanted to grow its electricity division from 5% of its business to 15% by 2030. At first, that may not sound like such a big deal, but step back and look at the difference between 5% and 15%, which is a full 10 percentage points. In a decade, the company wants to triple the size of this division!
Notably, at the same time, it wants to expand the absolute size of its carbon-related energy businesses. Under that top-level view, the goal is to increase the natural gas division from 40% of the total to 50%. Oil will be the smaller business, shrinking from 55% of TotalEnergies' operations to 30%, with five percentage points of that dedicated to biofuels.
Image source: Getty Images.
These are not idle changes; they are fairly big moves. More important, however, is that the company is planning to adjust along with the world around it. That means investors can own an energy name, benefiting from the rebounding energy sector today, and get increasing exposure over time to newer and cleaner energy businesses.
Those new investments, meanwhile, will be funded by the cash-cow carbon business. It's kind of a win-win situation for long-term investors who believe the energy transition taking shape today will likely be a decades-long affair.
And all the while, investors can collect a hefty 5.6% dividend yield. TotalEnergies is a French company, so there are foreign taxes to contend with come tax time (you can get credit for foreign taxes when you file). Still, its yield is at the top end of its closest peer group. Not a bad deal at all.
Proof is in the pudding
That said, long before its 2020 clean energy pivot, BP tried to claim a new nickname -- "Beyond Petroleum" -- as it worked to embrace clean energy. That effort basically failed, and it went back to its carbon roots. So, it makes sense that investors might take a leery approach to any energy major that's shifting gears this time around, including TotalEnergies. Only, TotalEnergies had been investing in clean energy for years before it made the effort more official.
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Key Data Points
Since the 2020 announcement, meanwhile, it has been doing exactly what it said it would. Just in 2022 alone, it has made a raft of announcements that should help it shift toward cleaner-burning natural gas and "clean" growth in the electrons business. For example, TotalEnergies:
- Acquired Core Solar and its portfolio of more than 4 gigawatts (GW) of utility-scale solar and energy storage projects, expanding its U.S. portfolio to more than 10 GW gross capacity.
- Joined forces with ENEOS in a 50-50 joint venture to develop 2 GW of decentralized solar capacity in Asia over the next five years.
- Expanded its relationship with Sempra through two memorandums of understanding, one for a liquified natural gas (LNG) export project in Mexico and the other for the co-development of several onshore and offshore renewables projects.
- Participated with companies, including ArcelorMittal, in a French carbon-capture demonstration project.
- Started production of renewable aviation fuel in France, adding a new facility to two others it has producing biojet fuel.
- Won leases to develop up to 3 GW of offshore wind power off the coasts of New York and New Jersey.
- Won rights to develop 2 GW of offshore wind power in Scotland in a joint venture with Macquarie's Green Investment Group (GIG) (46.75%) and RIDG (15%), with TotalEnergies accounting for the remainder.
And that's just a sampling of the moves TotalEnergies has made in 2022, which isn't even half over yet. Big capital investments tend to be lumpy in nature, so it would be a mistake to use early 2022 as some sort of run rate for the company's plans. However, directionally, it clearly shows that TotalEnergies is serious about shifting toward cleaner alternatives. The big moves in oil are making headlines today, but TotalEnergies is clearly making sure it keeps its eye on the long-term.
Worth a closer look
If you have been avoiding energy stocks because of their ties to dirty carbon fuels, TotalEnergies could offer you a decent compromise. It is definitely benefiting today from its carbon-heavy energy business, but it is also very clearly using the cash it generates from these divisions to shift in a cleaner direction (natural gas) and build a new division focused on cleaner alternatives (the electricity division).
While it does all that, you can collect a generous income stream and rest comfortably, knowing the energy company you own is changing over time with the world around it.
