Author: Reuben Gregg Brewer | April 22, 2019
Protecting our planet
In honor of Earth Day, here's a look at 10 companies that have done right by the planet on which we live and breathe. Far from focusing on a collection of "granola eating hippy" stocks, however, this list looks at Earth-friendly stocks from a slightly different perspective -- one that takes the business world into consideration. Yes, you'll find a few names that you'll be able to brag about owning at the big Earth Day party bash you're planning to attend. But you'll also find a few names that you might not expect -- companies that do good while keeping the human world running and making investors money. Without further ado, it's time to jump into this list of Earth-friendly stocks, starting with some obvious names and slowly moving into the ones you might not have realized were so conscious of our planet.
1. Power, the clean way
Brookfield Renewable Partners L.P.'s (NYSE: BEP) business is generating energy. But as environmentally conscious investors know all too well, how a company generates electricity matters. Brookfield's focus, as its name implies, is on clean and renewable sources. It built its business on a large portfolio of hydroelectric dams, which is one of the oldest and most reliable sources of clean energy known to man. This business makes up roughly three-quarters of the partnership's generating capacity.
The rest is made up of wind (20% of capacity) and solar (about 5%). Although the partnership is still looking to expand in the hydro space, this isn't a long-term growth opportunity (most of the good locations are, unsurprisingly, already taken). Growth from here will come from building and buying wind and solar farms. With a backlog of projects already lined up, meanwhile, Brookfield Renewable should be able to keep rewarding investors with mid-single digit distribution growth to back its sizable 6.5% yield. Distribution growth is a specific long-term goal, and makes this high-yield investment worth heavy consideration for environmentally conscious income investors.
2. Making the sun work for you
It's hard to talk about an entity like Brookfield Renewable Partners without taking into consideration the companies that make its business possible. On the solar side a good name to look at is solar panel manufacturer SunPower Corporation (Nasdaq: SPWR). This company is one of the largest in the space, but it hasn't been such a great investment lately. That said, it is working to streamline its business and position itself for the future.
A big part of that has included selling assets (including taking write downs), investing in the latest solar panel technology, and partnering up with other companies. The company's debt-heavy balance sheet needs to be closely monitored, but SunPower has a very prominent backer in majority owner Total, S.A. (NYSE: TOT). Yes, the giant French oil company that is increasingly using its financial heft to expand into new areas (like renewable power). SunPower is probably best for more active investors, but with Total in the mix it's worth a close look.
3. Catching the wind
If solar is half the renewable power equation, then wind is the other half. And while there are a lot of options in the space, one of the largest and purest plays here is Vestas Wind Systems (Nasdaqoth: VWDRY). As with solar, falling prices haven't been kind to this Danish company, with revenue in 2018 up a little less than 2%.
However, the company continues to push the industry toward more efficient turbine technology (read larger blades) and remains upbeat about the future. For example, it expects revenue to increase 10% in 2019. And it is looking to expand its highly profitable services business over time, which boasts margins of around 24% compared to the 8% to 10% margins from the manufacturing side of the business. That will create a much more durable revenue stream, capable of weathering the ups and downs of construction cycles.
4. A power balancing act
While Brookfield is a pure play on renewable power, there's another utility-focused option for investors to look at: NextEra Energy (NYSE: NEE). This company owns the largest old-school utility in Florida (Florida Power & Light), using it as a foundation on which to aggressively expand a renewable merchant power business backed by long-term contracts. It is, effectively, a way to mix the old and the new in the utility space. And it has done an exceptional job on both fronts, with adjusted earnings growing 15% in 2018 and dividends expanding by nearly 13%. Note that it has already increased the 2019 dividend by a similar amount, suggesting that the future remains bright.
That said, investors are well aware of the company's successful execution. By utility standards, NextEra Energy is fairly expensive. For example, the yield is a miserly 2.5%, not much higher than you could get from an S&P 500 Index fund and half of what you can get from some similarly sized peers. However, the growth outlook here is unique and might just be enough to entice you to pay up for this industry leading utility.
5. Power from another source
It's time to shift gears even more dramatically with Covanta Holding Corporation (NYSE: CVA). Technically this company is a trash hauler, collecting all the nasty garbage that humans make and carting it away so no one has to look at it (around 70% of revenue). But what actually happens to all that trash is what makes this company interesting from an environmental perspective.
As you might expect, Covanta sorts through the rubbish looking for recyclables. That drives about 5% of revenue and keeps these still valuable commodities from being wasted -- a very good thing for the environment. But globally diversified Covanta also runs a fleet of power plants that use human refuse as fuel, providing 1.7 gigawatts of base load capacity (about 20% of revenue). Although you can easily argue that burning garbage isn't the best solution, it keeps that trash out of landfills and uses it to create a needed resource (electricity). And the company has been killing it lately, environmentally speaking, hitting records for garbage collected, recyclables salvaged, and power generated in 2018. Meanwhile, for those with an income focus, the stock pays a hefty 5.8% yield.
6. A big time tree hugger, really
You might not believe it at first, but timber real estate investment trust (REIT) Weyerhaeuser Company (NYSE: WY) is as green as they get. Yes, it generates revenue by cutting trees down, but don't stop there -- think this one through. Wood is probably the most easily recyclable product on Earth. And trees grow back, so it is a renewable resource as well. Meanwhile, Weyerhaeuser is incentivised to take very good care of the timberland it owns because doing anything less would mean going out of business. It's really as green as can be.
The company owns 12 million acres of land in the United States and manages another 14 million acres in Canada. To put a number on its green credentials, it planted more than 1 billion trees over the past decade! The yield, meanwhile, is a healthy 5.4%, for investors with a bias toward income stocks. All of that said, there's a close relationship here with the construction market, because in addition to being one of the country's largest timberland owners Weyerhaeuser is also one of the largest producers of wood products (lumber and such). So if you step in here, you'll want to keep an eye on home building.
7. "Steel" yourself for this one
Smog belching blast furnaces are what most people think of when they envision a steel mill. But that's not at all what giant U.S. steelmaker Nucor Corporation (NYSE: NUE) does. First off, its business is built off of smaller and more efficient electric arc mills. Second, these mills make heavy use of scrap metal. That means Nucor is recycling things like old cars -- and in a very big way. The company's David J. Joseph scrap metal division ensures it has plenty of feedstock for its mills and just so happens to make Nucor the largest recycler in the United States. Most people don't see that little fact coming.
Nucor has been hitting on all cylinders lately, posting record results in 2018. It's investing for the future, too, building new strategically located assets to serve still growing demand for steel products in the U.S. market. That said, investors aren't oblivious to how well Nucor is run and it always seems to trade at a premium valuation. But every once in a while it goes on sale. If you are looking to own a giant recycler, put Nucor on your wish list for the next downturn in the cyclical steel industry. You'll probably be able to buy some shares at a relatively good price (bet you thought I'd try to be cute and use the word steal).
8. Quenching the Earth (or at least the United States)
Although global warming gets the big headlines, there's another massive environmental issue we face on the world stage: potable water. While the United States is currently blessed to have ample access to fresh water that's suitable for drinking, overall, all of the country isn't so lucky (think the contentious droughts that California has faced in recent years). And there are other places in the world that are already having material shortfalls (South Africa's Cape Town nearly ran out of potable water recently). That's where a company like American Water Works Company, Inc. (NYSE: AWK) comes in.
American Water Works is the largest water utility in the United States and also runs a significant number of wastewater treatment facilities. The really exciting thing here, and why it's so interesting from an environmental perspective, is that U.S. water infrastructure is in dismal shape. Management expects to spend around $1.5 billion a year upgrading its assets, which will back rate hike requests and lead to higher earnings and dividends. Adding to that, it also expects to keep buying water assets from cash strapped municipalities that can't afford the needed upgrades. Water is a big deal, and American Water Works is an interesting, Earth friendly way to play the space.
9. Crazy enough to change the world
To be honest, Tesla, Inc. (Nasdaq: TSLA) is a tough sell. The stock is expensive relative to other automakers and CEO Elon Musk is a genius that borders on a corporate liability. However, he and the company he founded deserve some credit for being crazy enough to change the way the world thinks about transportation. While other automakers have to shift gears from gasoline to Earth-friendly electric vehicles, Tesla is there already.
And Tesla appears to have finally gotten to the point where it's making money. Although two quarters of profitability don't actually make a trend, they are a very good start. If Tesla can keep the black ink flowing, it will have a much easier time dealing with its heavy debt load and still massive growth plans. For investors who are willing to pay up for a company that has long agitated for change, Tesla is worth a deep dive. In fact, some market watchers think there are still very bright days ahead for the electric vehicle upstart.
10. Mistakes happen, this company cleans them up
To end this list, let's bring in a big dose of reality. Not everyone believes in taking good care of the Earth. And even those who do care deeply can make mistakes that end up damaging the fragile ecosystems in which we live. That's where Clean Harbors (NYSE: CLH) comes in. This company is the one that gets called to clean up environmental disasters. For example, Clean Harbors led the clean up effort after the Deepwater Horizon explosion and oil spill in the Gulf of Mexico in 2010.
The company does other things (like recycling used motor oil), too, but always seems to have a steady business cleaning up other people's messes. And that's not likely to end because mistakes happen. With revenue that has tripled over the past decade, investors who take a realistic view of the world might want to do a deep dive here as something of a contrarian play on the Earth Day theme.
Reuben Gregg Brewer owns shares of Nucor. The Motley Fool owns shares of and recommends Tesla. The Motley Fool owns shares of Clean Harbors. The Motley Fool recommends NextEra Energy and Nucor. The Motley Fool has a disclosure policy.