The energy transition to cleaner power is one of the biggest investment opportunities in a lifetime. Companies must invest trillions of dollars over the next few decades to decarbonize their operations. That will power tremendous growth for companies developing and producing renewable power.
Brookfield Renewable (BEP 1.63%) (BEPC 1.56%) and NextEra Energy (NEE 0.34%) are renewable energy industry leaders. A relatively modest investment of around $1,000 into these stocks could yield strong total returns in the coming years as they grow their earnings and dividends.
The power to continue producing robust returns
Brookfield Renewable has a tremendous track record of growing shareholder value. The large-scale renewable power producer has generated an average annual total return of 19.6% over the last five years and roughly 16% since its inception, obliterating the returns of the S&P 500 (10.6% over the past five years and about 7% since Brookfield Renewable's formation). That has given Brookfield the power to grow a $1,000 investment into nearly $2,500 over the past five years.
That past performance is no guarantee of future success. However, a multitude of catalysts could give Brookfield the power to continue producing strong total returns. It has a quartet of drivers that should grow its funds from operations (FFO) by a more than 10% annual rate through at least 2027:
Image source: Brookfield Renewable.
The company has already secured and funded a strong baseline growth rate. Meanwhile, it continues to find new opportunities. For example, Brookfield and its partners are acquiring Australian utility Origin Energy to lead its decarbonization. The company expects the deal to generate attractive returns for its investors. It's pursuing that transaction through its first energy transition fund, which is now almost fully committed. It recently launched a second fund, which could be even bigger, giving it more power to grow.
Brookfield's growing earnings will enable it to continue increasing its 3.9%-yielding dividend. It's targeting to grow that payout at a 5% to 9% annual rate over the long term. Brookfield's combination of a high income yield and potential double-digit earnings growth rate could power total annual returns in the mid-teens over the next several years. Assuming a 15% average annual return, Brookfield could grow a $1,000 investment into nearly $2,700 by 2030.
Ample power to continue growing at a strong rate
NextEra Energy also has an exceptional track record of generating strong returns for its investors. The leading clean energy-focused utility has generated an average annual total return of more than 17% over the past decade. That's grown a $1,000 investment into nearly $5,000.
Again, that past success doesn't guarantee it can achieve similar results in the future. However, the company expects to deliver healthy earnings growth over the next several years:
Image source: NextEra Energy.
As that slide showcases, NextEra Energy expects to deliver upwards of 8% annual earnings-per-share growth over the next few years, with cash flow potentially growing even faster. That's close to the company's annual long-term earnings growth rate of 8.3% over the past 15 years.
NextEra Energy expects to deliver annual dividend growth of around 10% through at least next year, aligning with its historical growth rate of 9.9% since 2007. That payout currently yields about 2.5%.
Given that the company's outlook aligns with its historical performance, it certainly has the potential to produce average annual returns in the mid-teens. Adding to that outlook is that its earnings growth rate could accelerate over the long term as the economy speeds up its transition to lower carbon energy. The company sees huge potential in green hydrogen, one of several catalysts that could boost growth after 2026.
Pulled into a powerful megatrend
Brookfield Renewable and NextEra Energy have benefited from the accelerating growth of renewable energy over the past decade. They've built powerful platforms to capitalize on its continued growth, and they should continue growing their earnings and dividends at above-average rates, which could give them the power to generate strong total returns. That could grow a $1,000 investment in these industry leaders into a much bigger payday by the end of this decade.
