Renewable Energy Dividend Stocks

Renewable energy dividend stocks offer investors the opportunity to receive dividend income while supporting the global transition to zero-emission power sources.

Many renewable energy companies build or develop electricity-generating assets such as wind farms and solar power systems, which generate reliable revenue through power purchase agreements (PPAs) -- commitments from legacy electric utility companies to purchase electricity from renewable energy producers at fixed rates. The industry norm of establishing long-term PPAs enables renewable energy producers to generate steady cash flows, which are a general prerequisite to reliable dividend payments.

Dividend stocks, or the stocks of companies that pay reliable and attractive dividends, are great additions to any portfolio. Most dividend payments are disbursed quarterly, and investors can either reinvest or spend the money received.

Dividend stocks, because of their regular payouts, routinely produce above-average total returns. Combine that with the growth potential of the renewable energy sector, and the industry's top dividend stocks could pay extremely attractive returns in the coming years.

Here's a closer look at some of the best dividend stocks in the renewable energy industry.

Top renewable energy dividend stocks to buy now

Although several renewable energy companies pay a dividend, the following companies stand out for their combination of solid financial standing, attractive dividend yield, and strong growth potential:

Here's a closer look at these top-tier renewable energy dividend stocks:

1. Brookfield Renewable Partners 

Brookfield Renewable Partners operates one of the largest global renewable energy platforms. A subsidiary of the global alternative asset manager Brookfield Asset Management (BAM -0.26%), Brookfield Renewable operates more than 5,300 renewable energy generation facilities across North and South America, Europe, and Asia.

With more than 20 gigawatts (GW) of electricity generation capacity, the company is already a global leader in hydroelectric power and is expanding its assets in wind, solar, and energy storage technologies.

Brookfield Renewable expects to increase its cash flow at a brisk pace through 2025. The company anticipates that internal growth drivers, such as inflation-linked rate increases on existing contracts and its ability to reduce costs, will cause annual cash flow per share to increase by 3% to 6%.

The company also has an extensive pipeline of projects under development that will add 23 GW to its generation capacity and support another 3% to 5% annual increase in cash flow per share. Brookfield Renewable expects to continue acquiring renewable energy assets and platforms, which could generate an additional 9% in annual growth of cash flow per share. Brookfield is financially very well-positioned to continue its expansion, with a conservative dividend payout ratio and an investment-grade balance sheet.

These combined projections indicate that Brookfield Renewable's cash flow is likely to grow annually by 6% to 20% for many years to come. That forecast supports the company's assertion that it can annually increase its dividend payments by 5% to 9%.

Combining Brookfield's attractive dividend yield with its attractive growth potential suggests this renewable energy dividend stock could produce total percentage returns in the mid-teens in the years ahead.

2. Clearway Energy

Clearway Energy operates a large-scale U.S. renewable energy portfolio, with more than 4.2 GW of electricity generation capacity. The company also operates about 2.5 GW of natural gas generation facilities and a portfolio of district energy systems, which are centralized generation facilities that heat and cool building networks.

Clearway Energy primarily sells electric power under long-term PPAs, enabling it to generate stable cash flows to reliably pay dividends.

Clearway expects to annually increase its dividend by 5% to 8% in the coming years. The company benefits from its close relationships with Clearway Energy Group (CEG), a separate entity that develops renewable energy projects, and fund manager Global Infrastructure Partners, which invests capital in Clearway Energy.

CEG has more than 10 GW of renewable energy under development, which gives Clearway access to an attractive range of investment and acquisition opportunities. Clearway can also expand its existing generation assets and purchase generation facilities from third-party owners. The company's solid financial standing, which includes a reasonable dividend payout ratio and ample liquidity, supports its continued growth.

3. NextEra Energy Partners

NextEra Energy Partners operates a large-scale U.S. renewable energy business with almost 6 GW of wind and solar energy assets. The company also owns several natural gas pipelines. NextEra Energy Partners' infrastructure generates relatively stable cash flow to support a reliable dividend.

NextEra Energy Partners expects to increase its dividend annually by 12% to 15% through at least 2024. Via its affiliation with parent company NextEra Energy (NEE 0.45%), the global leader in wind and solar power production, NextEra Energy Partners receives priority access to a sizable number of renewable energy projects under development.

NextEra Energy Partners can also organically expand its existing assets and acquire renewable energy projects and natural gas pipelines from third parties. The company's access to multiple sources of funding, combined with its reasonable dividend yield, indicates it is likely to successfully fulfill its dividend growth projections.

What to know about renewable energy stocks

The renewable energy industry is still emerging. According to an estimate by Brookfield Renewable, "advancing the transition to a lower-carbon future will require substantial capital, in excess of $100 trillion over the next three decades."

The sector offers investors an opportunity to profit from a multi-decade stretch of dividend growth by investing in companies that build or buy cash flow-generating renewable energy assets.

The rapidly falling costs of solar panels and battery storage, along with increased electricity generation efficiency, position solar energy as a key growth area of the renewable energy sector. Solar installations are on track to accelerate over the coming decade, with average annual solar capacity additions in the U.S. projected to rise by 18 to 20 GW per year between 2023 and 2030, up from 10 GW annually from 2019 through 2022.

For comparison, the average annual wind additions in the U.S. are projected to rise from 10 GW in the 2019-22 timeframe to between 12 and 15 GW annually in 2023 through 2030. This forecast, which is a composite of forecasts by the National Renewable Energy Laboratory, the U.S. Energy Information Administration, and other entities, indicates that renewable energy dividend stocks are likely to pay attractive returns in the coming decade.

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Great dividends in renewable energy

The renewable energy industry could create many opportunities for income investors in the coming years. The sector appears poised to rapidly expand, which should enable companies such as Brookfield Renewable, Clearway Energy, and NextEra Energy Partners to continue growing as leaders of the pack.

These stocks' attractive dividend yields offer upside potentials that make this trio stand out as excellent renewable energy dividend stocks. You can buy and hold the stocks of these companies for the long term since they are likely to steadily generate more income for years.