Profit growth drives stock prices higher over the long term, so it's smart to focus on investing in stocks with visible earnings growth on the horizon.
NextEra Energy (NEE -1.36%), Clearway Energy (CWEN 0.26%) (CWEN.A 0.28%), and Ford (F -1.92%) stand out to a few Fool.com contributors for their long-term growth prospects. Here's why they believe this makes them no-brainer buys right now.
NextEra Energy's dividend growth is fast for a utility
Reuben Gregg Brewer (NextEra Energy): When it comes to utilities, NextEra Energy usually falls well short of the pack on dividend yield. Today, its yield is 3.6%, which is basically just average for a utility, using Vanguard Utilities ETF as a proxy. However, that happens to be near the highest yield this stock has offered in a decade. This suggests that NextEra Energy is cheap today. Don't miss out on this opportunity.
NextEra Energy is a mixture of a slow and steady regulated utility (largely Florida Power & Light) and a fast growing renewable power business (NextEra is one of the largest producers of solar and wind power in the world). This combination has allowed NextEra Energy to grow its dividend at an annualized rate of 10% over the past decade. Half of that figure would be considered pretty good in the utility sector. In other words, this is a rare dividend growth stock in what is traditionally seen as a boring sector.
That can have huge benefits for dividend growth investors. Given NextEra's historically high yield, it can add diversification to a portfolio that will probably be lacking utility exposure. And another year of strong 10% dividend growth is expected in 2024 (a rate it expects to continue through 2026), with solid earnings growth (6% to 8% a year) expected through at least 2026. Simply put, the future still looks pretty bright. This is an opportunity to buy a great dividend growth utility at a very attractive price, don't let it slip by you.
Powerful dividend growth ahead
Matt DiLallo (Clearway Energy): Clearway Energy is one of the largest renewable energy generators in the country. It also operates a portfolio of environmentally sound natural gas power plants. The company's clean energy assets generate very stable cash flow backed by fixed-rate power purchase agreements with utilities and large corporate buyers.
It uses its steady cash to pay an attractive dividend (currently yielding 7.1%) and invest in new renewable energy assets. Clearway currently expects to grow its high-yielding payout toward the upper end of its 5% to 8% annual target range through 2026.
The main factor powering that plan is its capital recycling strategy. Clearway cashed in on its thermal assets in 2022, netting about $1.3 billion in cash proceeds. It has been steadily reinvesting that money into higher-returning renewable energy projects. Last year, it committed to invest $215 million in wind, solar, storage, and wind repowering projects that should start generating power and cash flow this year. Meanwhile, it has lined up potential deals to reinvest the remaining proceeds into high-return renewable projects. That gives it the line of sight to grow its cash available for dividends from $342 million last year to $435 million in the future.
The company is starting to gain more visibility into growth beyond 2026. The rates on recent contract renewals for some of its natural gas power plants are coming in at levels that could support the low end of its dividend growth target range in 2027. Meanwhile, given the growing demand for renewable energy, it should have no shortage of new investment opportunities. Its parent company has a massive pipeline of projects currently under development. Clearway also has opportunities to invest in repowering existing wind farms and adding battery storage capacity.
With shares down 30% over the past year because of rising interest rates and ample growth ahead powered by the renewable energy megatrend, Clearway is a no-brainer buy for the long haul right now.
On the right track
Neha Chamaria (Ford Motor): Ford stock has rallied almost 19% in the past three months as of the time of this writing, but this could just be the beginning of a bull run for the automaker given the latest developments.
Ford recently reported strong numbers for its fourth quarter and full year 2023. Despite macroeconomic challenges and internal hurdles like labor strikes, Ford grew its revenue by 11% in 2023 and turned a net profit of $4.3 billion versus a net loss of $2 billion in 2022. It generated adjusted free cash flow (FCF) of $6.8 billion in the year, beating its own guidance of $5 billion to $5.5 billion. Ford also declared a supplemental dividend for the first quarter.
While demand remained strong, Ford also cut costs and reduced capital spending in slower markets to boost overall profit and returns in 2023. Interestingly enough, Ford now wants to cut down spending on electric vehicles given the global slowdown and focus on more profitable businesses instead, such as Ford Pro. Pro is Ford's commercial vehicles segment which also generates a lot of recurring revenue. Ford expects to generate adjusted earnings before interest and tax (EBIT) of $10 billion to $12 billion in 2024 versus $10.4 billion in 2023 and $6 billion to $7 billion in adjusted FCF. The company is committed to returning 40% to 50% of adjusted FCF in dividends to shareholders.
With important product launches lined up for 2024 including a new version of its best-selling pickup truck, the F-150, Ford is a solid stock to buy now for 2024 and beyond.
