Climate change concerns are driving a massive transition away from carbon-emitting fossil fuels to lower-carbon alternatives. While this energy transition will take decades to complete, many companies aren't waiting around. They're starting their transition now, so they don't fall behind.
TotalEnergies (TTE 1.10%), NextEra Energy (NEE -1.36%), and Enbridge (ENB -1.21%) stand out to a few Fool.com contributors for the steps they're taking to future-proof their businesses. Here's why they believe that makes them stand out as great energy stocks to buy and hold for years to come.
Today and tomorrow
Reuben Gregg Brewer (TotalEnergies): The world continues to need carbon-based fuels. In fact, under the most realistic scenarios of the future, oil and natural gas will remain important sources of energy for decades to come. French integrated energy giant TotalEnergies is built to serve those needs, with a globally diversified business that spans the entire oil and natural gas value chain from the upstream (drilling) through the midstream (pipelines) and into the downstream (refining and chemicals).
And yet, at the same time, TotalEnergies is very cognizant of the fact that cleaner energy options are increasingly important. This is why it has long invested in the space, with plans for more to come. In fact, it has now broken out its clean energy investments as a stand-alone division so investors can better assess the company's progress. The integrated power division is small, at just about 5% of net operating income, but the goal is to keep expanding it along with the global shift toward clean energy.
In other words, TotalEnergies is not only doing what needs to be done today, but it is doing what needs to be done to ensure its long-term future, as well. And investors can collect a generous dividend yield along the way (note that U.S. investors have to pay French taxes on the dividends).
Reap rich returns from this stock
Neha Chamaria (NextEra Energy): Renewable energy is believed to be the future of energy, and there's quite a bit of truth to the idea. Global renewable electricity capacity additions hit a record in 2022, and the International Energy Agency (IEA) projects renewables capacity expansion between 2022 and 2027 to be 85% faster than in the previous five years. The IEA also expects renewables to become the world's largest source of electricity generation by 2025.
Going by these numbers, you'd be smart to buy a clean energy stock now and hold it for practically forever. A top stock to consider is NextEra Energy, also the world's largest producer of electricity from wind and solar energy. The company also owns and operates the largest electricity utility in the U.S.
NextEra Energy has a huge pipeline and could double its renewable generation capacity by as early as 2026. That growth should show up on the company's top and bottom lines. So far, NextEra Energy has executed well on its growth plans, with its expertise and strong balance sheet playing a vital role.
NEE Cash from Operations (TTM) data by YCharts
Between 2007 and 2022, NextEra Energy grew its adjusted earnings per share by a compound annual growth rate (CAGR) of 8.3% and dividends by a CAGR of 9.9%. Reinvesting those dividends has generated multi-bagger returns for investors who bought the stock years ago and forgot all about it. That's something you could do too -- buy and forget NextEra Energy shares, expecting multi-bagger returns in the coming decades as the company takes advantage of the growth opportunities in clean energy.
Slowly transitioning to a lower-carbon future
Matt DiLallo (Enbridge): Enbridge is slowly transitioning its business mix from oil to lower-carbon energy sources. Before 2016, the company got 74% of its earnings from liquids, 21% from gas, and 5% from renewable power. Today, it gets more than half its earnings from lower-carbon energy sources (gas and renewables).
That steady shift toward cleaner energy should continue. The Canadian energy infrastructure giant has about 17 billion Canadian dollars ($12.9 billion) of commercially secured expansion projects in its backlog. Nearly all of them support lower-carbon energy. Projects include natural gas pipeline expansions, liquified natural gas (LNG) export capacity, renewable natural gas (RNG) projects, and European offshore wind farms.
Meanwhile, the company has additional lower-carbon energy projects in development. It's pursuing several emerging technologies, including carbon capture and sequestration, hydrogen, and blue ammonia. It has also acquired a couple of expandable platforms in the past year to help power future growth. In September 2022, it bought Tri Global Energy, a top 10 developer of renewable energy projects in the U.S. Meanwhile, in March 2023, it purchased a 10% stake in Divert, which developed technology to turn food waste into RNG.
Enbridge expects to invest billions of dollars annually to expand its lower-carbon energy platforms in the coming years. These investments should grow the company's cash flow at around a 3% to 5% annual rate. That should support continued growth in Enbridge's dividend, which currently yields 7%. The company's growing earnings and dividends should give it the power to produce attractive total returns in the years to come.
