Investors interested in dividend stocks that have strong growth potential should take a closer look at the renewable energy industry. While growth stocks typically do not pay dividends, there are many renewable energy stocks that have attractive dividend payouts.
Renewable energy is making up an ever-larger proportion of energy production in the US, and there are publicly traded, dividend-paying stocks that allow investors to take advantage of this trend. In fact, one of the stocks in this article pays its shareholders monthly dividends.
Renewable energy isn’t new by any means, but it has taken on greater significance in the production of energy at scale in recent years. Renewable energy can include things like hydropower, geothermal, wood, biomass, wind, and solar.
In this article, we’ll take a look at three utility stocks that look poised to benefit from the growth of renewable energy.
- NextEra Energy (NYSE:NEE)
- Brookfield Renewable Partners L.P. (NYSE:BEP)
- TransAlta Renewables Inc. (OTCMKTS:TRSWF)
Dividend Stocks: NextEra Energy (NEE)
NextEra is a North American utility that generates, transmits, distributes and sells electric power to both retail and commercial customers. It generates electricity through wind, solar, nuclear and fossil fuel facilities.
The company’s investments in wind and solar have become the priority in recent years as the other fuel types gradually decline in attractiveness. NextEra also develops, constructs and operates renewable energy facilities like battery storage projects.
NextEra is a big player in the traditional and renewable energy markets, with 28,400 megawatts of net generating capacity. It has 5.6 million customer accounts and operates 76,000 miles of transmission and distribution lines, as well as nearly 700 substations.
NextEra was founded in 1925, generates nearly $21 billion in annual revenue, and trades with a market capitalization of $158 billion. The company continues to grow its earnings at a high rate. In the 2021 first quarter, NextEra Energy grew its adjusted earnings-per-share by 13.5% from the same quarter a year ago.
NextEra has also employed a strategy of combining organic and acquired growth throughout the years, with its GridLiance purchase closing on March 31 as a recent example. These traditional utility activities help fund NextEra’s investments in growth, which certainly include renewable energy sources.
Last year alone, NextEra added 7,000 megawatts of renewable energy, and it has a backlog of renewable energy products about double that size. It has committed to investing heavily in renewable energy, which we believe will help drive 7% annual earnings-per-share growth in the coming years.
NextEra Energy is on the list of Dividend Aristocrats, meaning it has raised its dividend for at least 25 consecutive years. The dividend payout currently yields 2%, and which we expect to grow by ~10% annually in the coming years. NextEra’s focus on growth via renewable energy looks to have the company well-positioned for years of dividend growth.
Brookfield Renewable Partners L.P. (BEP)
Our next stock is Brookfield Renewable Partners, a global company focused solely on the generation of renewable energy.
Brookfield owns one of the largest renewable energy portfolios in the world, with its portfolio stretching over North America, Colombia, Brazil, Europe, India, and China. It generates electricity through hydroelectric, wind, solar, biomass, cogeneration, and others.
Brookfield’s portfolio has 19,000 megawatts of installed capacity, so its scale is quite large. The company was founded in 1999 and is headquartered in Bermuda. The company should see just under $4 billion in revenue this year, and trades for a market capitalization of $19 billion.
Brookfield has struggled at times to grow funds-from-operations, or FFO, due to the volatile nature of its portfolio. Indeed, renewable energy is still a small proportion of global energy production, and Brookfield also operates in developing markets. Even so, the gradually declining costs of solar and wind production have afforded the company the ability to generate profits sufficient to continue to invest in future growth, as well as paying a dividend to shareholders.
Brookfield believes its focus on renewable energy gives it a competitive advantage as fossil fuels gradually lose their appeal, and the company believes it can deliver annual distribution increases of at least 5%. We expect to see this, as well as FFO growth of about 6% in the years to come.
BEP is a Master Limited Partnership, which carries its own unique characteristics and risk factors that investors should consider. But the company is an attractive stock for dividend growth investors. Brookfield’s current yield of 3% is more than double that of the S&P 500, and we expect the payout to rise by 5% annually in the coming years. Brookfield’s distributions have been volatile in recent years, but the company is on a solid footing in terms of providing more stable earnings.
Dividend Stocks: TransAlta Renewables Inc. (TRSWF)
TransAlta Renewables is a Canada-based company that was founded in 2013, and is a subsidiary of TransAlta Corporation (TAC). TransAlta Renewables develops, owns, and operates renewable power generation facilities, including 23 wind facilities, 13 hydroelectric facilities, seven natural gas generation facilities, a solar facility, and a battery storage center.
TransAlta operates in Canada, Wyoming, Massachusetts, Minnesota, as well as Western Australia. It should generate about $400 million in revenue this year, and trades for a market capitalization of $4.2 billion.
The company reported 5% adjusted EBITDA growth in 2020 and expects 8% growth in this metric for 2021.
Like Brookfield, TransAlta’s earnings history is volatile, which is in part due to the massive depreciation it takes against its assets. Cash flow is therefore a more reliable way to measure its success, and it has been around $1 per share for most of the time it has been publicly traded.
We like TransAlta’s weighted average contract life of 12 years, which affords a measure of stability. However, an ever-rising share count that is used in many cases to fund acquisitions has kept a lid on FFO-per-share growth.
We expect FFO to grow at 2% annually, which will help support the dividend. The dividend didn’t grow in 2020, but is up significantly from when TransAlta began paying it. We expect 1% dividend growth in the next five years for TransAlta.
The current yield of 4.6% is the biggest of the group, and more than 3X that of the S&P 500, but investors do give up some dividend growth potential with TransAlta.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.