If there's one thing that the current energy problems facing nations around the world have proven, it's that the world is nowhere near ready to get rid of oil or natural gas. The shift toward cleaner alternatives, like solar and wind, will likely take decades. In that scenario, TotalEnergies (TTE -0.58%) is charting a solid path forward and high energy prices today could make the integrated oil major's trip quicker and easier.

The big clean energy plan

TotalEnergies announced in 2020 that it was looking to shift its business in a cleaner direction, which was not unique, given that energy industry peers BP and Shell also declared the same thing. TotalEnergies' plan involves limiting oil investments to only its best opportunities, investing more heavily in natural gas, and materially expanding its clean energy business. 

An oil well with wind turbines in the background.

Image source: Getty Images.

To put some numbers on that, the goal is for oil to fall from 55% of the business in 2019 to 35% in 2030, including 5% from biofuels. Natural gas will increase from 40% to 50% over the same span. But the really big change is on the clean energy front, where TotalEnergies is looking to triple the size of its electricity division from 5% of the overall business to 15%. That said, this is all driven by a plan to grow, so the business in 2030 is expected to be larger than the business in 2019.

So far, integrated energy giant TotalEnergies has been making a lot of deals to live up to this big-picture promise. More are likely to come. But the reason why TotalEnergies gets my nod today over Enbridge (ENB -2.31%) -- a Canadian midstream energy company I own that is also expanding into clean power (for example, it is building wind farms in Europe) -- is that the fundamentals of the oil-producing business (TotalEnergies' core) and the pipeline sector (Enbridge's main source of cash flow) are very different.

A potentially big boost

Enbridge charges tolls for the use of its pipelines. The natural gas utility it owns and its clean energy operations are regulated or contract-driven. Thus, the cash flows Enbridge generates are fairly consistent over time. That's a great thing, and it helps to support the company's generous and long-growing dividend (27 annual dividend increases and counting) and current 6.5% dividend yield. But there's limited upside to its cash flows, so it has to take a slow and steady approach to its capital investment plans.

Cash flows at TotalEnergies, on the other hand, are directly tied to what's going on in the oil and natural gas markets. Higher commodity prices lead to materially higher profits. And right now, energy prices are elevated. In the first quarter of 2022, TotalEnergies reported adjusted net income that was just shy of $9 billion, up from roughly $3 billion a year earlier. That's a huge change driven by rising oil and gas prices.

The company witnessed material improvements across its business, with only the relatively tiny marketing operation (around 3% of business segment operating income) seeing a 4% decline in the most recent quarter. The trends supporting these results, including a supply/demand mismatch and geopolitical tensions, appear likely to continue for longer.

In other words, TotalEnergies is generating outsized cash flows today. This is at a time when many clean energy companies have seen their share prices heading lower. iShares Global Clean Energy ETF has fallen 40% from its early 2021 highs. TotalEnergies could easily use its current success to buy discounted businesses in the clean energy or electricity space. 

That would put what will likely be temporary cash flows to good use and speed up the company's long-term clean energy transition. A win-win. And since oil prices are notoriously volatile, it would be a better use of cash than plumping up the dividend to unsustainable levels or simply buying back stock, which doesn't do much for the long-term health of a business. Debt reduction could be a solid alternative, but even here, the benefit would be added financial flexibility to invest down the road.

Worth a close look for an all-of-the-above strategy

TotalEnergies isn't a slam dunk for any investor, given the cyclical nature of the energy industry. Today's good times will eventually fade. But if you want some energy exposure and like the direction TotalEnergies is heading, the current industry upturn could help it reach its long-term clean energy goals more quickly and, perhaps, more easily.

Conservative types will probably prefer a slower and more consistent industry name like Enbridge. However, with a generous 5.6% dividend yield and exceptionally strong results today, TotalEnergies looks like it has the wind at its back at a very opportune moment.