Decarbonization is one of the biggest megatrends to hit the global economy in generations. Worldwide, preventing a climate catastrophe will demand investments of more than $150 trillion over the next three decades to replace fossil fuel energy sources with lower carbon alternatives. That represents an immense opportunity for companies positioned to propel that transition forward.
Two companies already leading the decarbonization wave are Brookfield Renewable (BEPC 3.62%) (BEP 4.19%) and NextEra Energy (NEE 3.38%). Because of that, they appear poised to deliver unstoppable growth over the next decade.
The case for Brookfield Renewable
Brookfield Renewable operates a globally diversified portfolio of renewable energy and energy transition assets. It currently generates 21 gigawatts (GW) of renewable energy, the equivalent of removing 6 million internal combustion vehicles from the road. Its assets produce steady cash flows backed by long-term power purchase agreements.
The company aims to develop an additional 21 GW worth of power generation assets by 2030, doubling its capacity. Brookfield estimates that these developments will allow it to grow its cash flow per share at a 3% to 5% annual rate through at least 2026. Meanwhile, its legacy portfolio should add growth of another 3% to 6% to its bottom line each year, due to inflation-driven rate increases and the higher electricity prices it will be able to negotiate for as its existing contracts expire. That adds up to 6% to 11% annual growth, which should support 5% to 9% yearly increases in its dividend, which at the current share price yields 3.6%.
In addition to that organic growth, Brookfield anticipates that mergers and acquisitions will add up to 9% per share to its bottom line each year. The company recently raised a record $15 billion for an energy transition fund to help companies decarbonize their operations. That's giving it additional capital to complete deals, positioning it to further capitalize on the decarbonization megatrend.
The case for NextEra Energy
NextEra Energy operates Florida Power & Light (FPL), a leading electric utility in the state, and NextEra Energy Resources, a large-scale clean energy infrastructure business. FPL generates stable rate-regulated earnings that steadily grow as more people and businesses migrate to Florida. The energy resources unit operates natural gas pipelines, renewable energy generating facilities, battery storage operations, and electricity transmission lines that generate steady cash flow backed by long-term fee-based contracts.
The company has bold plans for both subsidiaries. It recently unveiled its Real Zero strategy to eliminate its carbon emissions by 2045. FPL is undertaking the largest solar energy expansion in the nation, which it's supplementing with large-scale battery storage deployment. It also aims to replace natural gas in its power plants with green hydrogen and renewable natural gas. Meanwhile, NextEra Energy Resources intends to lead the decarbonization of the U.S. economy by building more solar, wind, battery storage, and electricity transmission capacity.
Those decarbonization investments should help grow NextEra Energy's earnings per share at a healthy rate in the coming years. Management expects profits to grow by more than 10% this year. It then foresees them expanding at the high end of its 6% to 8% target range through at least 2025. That should give the utility the funds to grow its 2.1%-yielding dividend by at least 10% annually through 2024.
NextEra has even more upside potential if it completes more acquisitions. For example, it's working to build a national water utility that could benefit its renewable natural gas and green hydrogen aspirations. It has also explored acquiring other electric utilities to help them accelerate their decarbonization plans.
Green growth ahead
Brookfield Renewable and NextEra Energy generate steady earnings from their existing assets, providing each with a solid foundation for growth. Those stable earnings give them the cash flow they require to support their dividends and expansion programs. Both see significant opportunities ahead from the global decarbonization megatrend. Because of that, they should be able to grow their earnings at health rates for the foreseeable future, making them ideal growth stocks to buy and hold for the next decade.