The energy sector had a rather pedestrian year in 2024. The average energy stock in the S&P 500 gained only 2% on the year, as measured by the return of the Energy Select SPDR ETF, well below the S&P 500's gain of more than 23%.
However, while energy stocks were down last year, the sector's future remains bright, given the expected surge in energy demand in the coming years from catalysts like artificial intelligence (AI) data centers. That's why investors should consider holding at least one energy stock in their portfolio.
For those with room for only one, Brookfield Renewable (BEPC 1.66%)(BEP 0.56%), Enterprise Products Partners (EPD +0.87%), and NextEra Energy (NEE 2.26%) stand out to a few Fool.com contributors as the top ones to consider buying now.
Brookfield Renewable is a one-stop clean energy stop
Reuben Gregg Brewer (Brookfield Renewable): The short-term reason to buy clean energy-focused Brookfield Renewable is that the market has cooled on the renewable power space. After a shocking and rapid price increase that started in 2019, Brookfield Renewable has fallen back to Earth along with the rest of the clean energy sector.
Having lost more than half its value, Brookfield Renewable is offering a 6.3% yield for its partnership class and a 5.2% yield for its corporate class. The two classes are largely identical, with the lower yield for the corporate shares arising from increased investor demand (some large investors, like pension funds, are barred from owning partnerships).
Those yields are backed by dividends that have grown regularly over time, and there's no reason to believe Brookfield Renewable won't continue to hit its target of 5% to 9% annual distribution growth. All in, Brookfield Renewable looks like a dividend growth stock currently on sale.
The longer-term reason to like Brookfield Renewable is its clean energy focus, where demand is expected to grow for decades. But it is the breadth of Brookfield Renewable's portfolio that is so enticing. It plays in the hydroelectric, solar, wind, storage, and nuclear spaces. And its portfolio is globally diversified.
NYSE: BEP
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Basically, it can invest opportunistically across the clean energy spectrum. That fits perfectly with its active portfolio approach, as management likes to buy assets when they are cheap, increase their value through investment and astute management, and then sell if a good price is offered.
If you are considering clean energy investments, Brookfield Renewable is the one I'd pick. (In fact, I did pick it, buying LP units myself in late 2024.)
Income and visible growth coming down the pipeline
Matt DiLallo (Enterprise Products Partners): Enterprise Products Partners didn't waste any time extending its distribution growth streak by another year. The master limited partnership (MLP) increased its quarterly distribution by 1.9% compared to its prior payment level earlier this month (and 3.9% above the year-ago level). Because of that, 2025 will mark its 27th straight year of increasing its distribution. With that raise, the midstream giant now yields 6.4%. That provides investors with a very nice base return.
In addition to that lucrative income stream, Enterprise Products Partners offers very solid growth prospects. The MLP closed its highly accretive acquisition of Pinon Midstream late last year. The $950 million deal will add about $0.03 per unit to its distributable cash flow this year before factoring in any benefit from commercial and operating synergies.
On top of that, the pipeline company will benefit from the completion of expansion projects. Last year, the MLP completed two gas pipeline plants: its Texas Western Products System and the first phase of its Morgan's Point Flex Expansion.
NYSE: EPD
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Meanwhile, CEO Jim Teague noted in the third-quarter earnings release that it's "on track to complete construction on two Permian processing plants, the Bahia pipeline, Fractionator 14, Phase 1 of our Neches River NGL Export Terminal and the last phase of our Morgan's Point Terminal Flex Expansion in 2025." He added that "these projects provide visibility to new sources of cash flow for the partnership."
The MLP is working to secure additional expansion projects that would enhance and extend its long-term growth outlook. It's developing a major offshore oil port project, a carbon dioxide transportation solution, and other projects, including additional gas pipeline capacity to support AI data centers. Meanwhile, Enterprise Products Partners has ample financial flexibility to continue making accretive acquisitions as opportunities arise.
With a high-yielding, steadily growing distribution and ample earnings growth coming down the pipeline, Enterprise Products Partners stands out as one of the top energy stocks to consider buying this year.
Powerful growth drivers
Neha Chamaria (NextEra Energy): Shares of NextEra Energy ended 2024 with 18% gains although they lost nearly 15% in value in the last quarter of the year. The drop seemed unwarranted, given the company's numbers and outlook through 2027, which is why NextEra Energy is among my top energy picks for 2025.
NextEra grew its adjusted earnings per share (EPS) by 9% during the first nine months of 2024. Steady capital spending on its utility business, Florida Power & Light Company (FPL), continues to pay off through regular base rate increases and higher revenue.
Its renewable energy arm, meanwhile, is steadily growing its backlog. By the end of the third quarter, NextEra Energy's renewables and energy storage backlog had grown to nearly 24 gigawatts (GW). For perspective, the company was then operating around 36 GW of capacity.
NYSE: NEE
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NextEra Energy estimates that its potential renewable capacity in operation could grow to more than 46 GW by 2027. This growth and regulated returns from FPL should boost NextEra Energy's adjusted EPS by 6% to 8% between 2023 and 2027. Management is also confident about increasing the annual dividend per share by around 10% through 2026.
A growing dividend backed by earnings and cash-flow growth should be reflected in NextEra Energy's stock price. NextEra has a solid dividend track record, having grown its dividend per share by a compound annual growth rate of nearly 10% between 2003 and 2023.
In the past 10 years alone, the stock has generated nearly 240% in total returns (including reinvested dividends). I believe NextEra Energy should continue to reward shareholders and is a rock-solid stock to buy in 2025 for the long term.
