The world is in the midst of a major energy transition. Dirtier energy sources are being replaced by cleaner ones, in what could be a decades-long shift in how the world generates and uses electricity. You can make this shift by going all-in with businesses like this Brookfield Renewable Energy (NYSE: BEP)(NYSE: BEPC)or you can hedge your bets by investing, e.g. next generation energy (NYSE: NEE) and total energy (NYSE: TTE). Here’s a look at each to help you decide.
Brookfield Renewables is involved in hydropower, solar, wind, battery storage and nuclear power. All of these are important clean energy sources, many of which are also renewable. The company’s assets are spread across North America, South America, Europe, and Asia. If you’re looking for a simple way to participate in the shift to clean energy, Brookfield Renewable Energy is a great choice.
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It also has a strong track record of success, with funds from operations growing at an average of 8% over the past decade. During this period, distributions increase by 5% annually. The company’s investment-grade credit rating went up one notch. Brookfield Renewables actively manages its portfolio, so there are always assets being bought and sold. However, the end result is very impressive and should appeal to more conservative investors.
The only thing is, you can buy Brookfield Renewables in two different ways. The partnership stock class’s distribution yields 5.2%, while the corporate stock class’s dividend yield is 3.8%. They represent the same business and pay the same dividends; the difference is that institutional investors have higher demand for the company’s shares. Small investors should be pleased with this partnership.
NextEra Energy operates one of the largest regulated electric utilities in the United States. This is the foundation on which it has built one of the world’s largest solar and wind energy businesses. This combination has resulted in annualized dividend growth of 11% over the past decade. Half the dividend growth rate would be considered favorable to the utility company. NextEra Energy’s dividend yield is 2.7%, which is actually higher than the utility average of nearly 2.5%.
In other words, when you buy NextEra Energy, you’re getting an above-average yield and above-average dividend growth. Given the ongoing shift toward clean energy, the company’s long-term growth prospects appear as positive as ever. Nonetheless, management is calling for dividend growth to slow to a still very healthy 6% in 2027 and 2028.
TotalEnergies will be the hardest clean energy investment to sell because it is an integrated energy giant. This means it is a vertically integrated oil and gas business. If you just want clean energy, you probably won’t want to buy TotalEnergies.
However, the company is unique among its peers in its commitment to investing carbon profits in clean energy and power assets. By 2025, the integrated power segment, where the company’s clean energy assets are located, will account for approximately 12% of the company’s business. The stock offers investors a way to get directly involved in the transition process, noting that even as the energy transition continues full steam ahead, oil and gas will likely remain important.
Combined with TotalEnergies’ 4.8% yield, we have even more reason to like this stock. That is, U.S. investors must pay French dividend tax but can claim some back at tax time.
No one clean energy investment option will meet the needs of all investors. If you want to go all-in, you might like Brookfield Renewable Energy. If you’re a little more conservative, NextEra Energy’s utility business might help you get a better night’s sleep. If you recognize the benefits of carbon fuels and the opportunities in clean energy, TotalEnergies can give you access to both.
Before buying NextEra Energy stock, consider the following factors:
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Reuben Gregg Brewer is with Brookfield Renewable Partners and TotalEnergies Se. The Motley Fool has an ongoing position and recommends NextEra Energy. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
The 3 Best Renewable Energy Stocks to Buy and Hold for Decades was originally published by The Motley Fool