The global economy is steadily shifting fuel sources. Because of that, the energy industry is in transition. It's working to supply the fossil fuels the world needs today while investing in the lower-carbon energy it will require in the future.
Given that direction, the best energy stocks to hold for the long haul are those focused on a lower-carbon future. Brookfield Renewable (NYSE: BEPC) (BEP +0.17%), Enbridge (ENB 0.82%), and Southern Company (SO 1.06%) stand out for their growing low-carbon businesses. Those operations make them great options for anyone wanting to invest $1,000 in the energy sector's future.
Renewable powered growth
NYSE: BEPC
Key Data Points
Brookfield Renewable is all-in on clean energy. It operates one of the world's largest renewable energy platforms. It also has a growing sustainable solutions platform.
The company's current operating portfolio of hydroelectric, wind, solar, and storage assets has the capacity to generate 31 gigawatts (GW) of clean power per year. That's enough to offset all the carbon emissions of France.
However, Brookfield Renewable is only scratching the surface of its power-producing potential. The company has 143 GW of renewable power projects in various stages of development (enough to power 19 million homes for one year). It's also investing in several sustainable solutions, including carbon capture and storage (CCS), renewable natural gas (RNG) production, materials recycling, solar panel manufacturing, and green ammonia.
These investments will supply significant earnings growth over the next few years. Add in other growth drivers like rising power prices and M&A, and Brookfield expects to grow its cash flow per share by more than 10% annually through at least 2028. Meanwhile, it anticipates increasing its 4.8%-yielding dividend by 5% to 9% per year. Those catalysts could help power double-digit total annual returns in the years to come.
Slowly shifting to lower-carbon energy
NYSE: ENB
Key Data Points
Oil pipeline giant Enbridge has been steadily shifting to lower-carbon energy over the years. It expects natural gas transmission, gas distribution, and renewable power to supply half its earnings this year, up from 43% last year. Powering that shift is the pending acquisition of three natural gas utilities from Dominion and its investments to grow its gas transmission and renewables earnings.
The steady shift to lower-carbon energy should continue in the future. Enbridge currently has 24 billion Canadian dollars ($17.8 billion) of expansion projects in its backlog. Only about $300 million of those projects are in its liquids pipeline segment. The rest are investments to support lower-carbon energy. It's investing in new natural gas pipelines, a liquified natural gas (LNG) facility, expanding its natural gas utilities, RNG projects, and offshore wind farms in Europe. Meanwhile, it has several more lower-carbon projects under development, including potential expansions into the CCS and blue ammonia sectors.
Enbridge expects its lower-carbon investment strategy will grow its earnings per share by around 5% annually over the medium term. That should give it the fuel to continue increasing its hefty dividend (currently yielding 7.5%). Those catalysts could supply Enbridge with the power to generate double-digit total annual returns.
Flipping the switch to a cash-flow generator
NYSE: SO
Key Data Points
Southern Company is a leading utility. It operates electric companies in three states and natural gas distribution companies in four states. It also has a growing commercial power business that generates renewable electricity sold to third parties.
Southern Company currently generates the bulk of its power from lower-carbon energy sources. Natural gas was 52% of its power mix in the third quarter, followed by nuclear (16%), renewables (15%), and coal (17%). The utility continues to slowly phase out coal by growing its generation capacity from lower-carbon energy sources.
The company is in the process of finishing a major expansion of its nuclear power capacity. It has invested over $10 billion to build two new nuclear-power-generating units. The first unit came online last year, while the second will enter commercial service in early 2024. Those investments should increase its operating cash flow by $700 million annually.
That will give Southern Company more cash to increase its dividend (currently yielding 4.1%) and invest in its transition to lower-carbon energy. Those future investments should help grow its earnings, allowing the utility to keep boosting its dividend. That income and earnings growth combination could enable the utility to produce attractive total annual returns over the long term.
The potential to generate powerful total returns
Brookfield Renewable, Enbridge, and Southern Company are all investing heavily in lower-carbon energy. Those investments should grow their cash flows, giving them the power to increase their higher-yielding dividends. That combination could enable these energy stocks to produce strong total returns. That makes them great places to park $1,000 in over the long haul. They could grow that money into a much bigger future payday.
