Clean energy is still a relatively modest contributor to the global energy pie. But it is the fastest-growing segment of that pie, as the world seems to be taking an all-of-the-above approach to deal with rising electricity demand.
If you are looking for a dividend stock to hold forever in the energy sector, it should probably have a clean energy angle to it. That's exactly what you'll get with NextEra Energy(NYSE: NEE). But you can also go all-in on clean energy with Brookfield Renewable(NYSE: BEP)(NYSE: BEPC).
Here's a look at both options.
What does NextEra Energy do?
NextEra Energy is in the utility sector, which makes logical sense. The core of the business is the company's Florida-based regulated electricity operation. This state has benefited for years from population growth.
More customers mean more revenue, given the monopoly the company has in the regions where it operates. But more customers also means more need for capital investment, which makes it easier to get capital investment plans and rate increases approved by regulators.
Basically, NextEra Energy's electric utility business provides a solid foundation for the company as a whole. In fact, if this were the only business line the company operated in, it would still be a very attractive investment. However, NextEra Energy also happens to be one of the largest generators of solar and wind power on the planet. This business is a fast-growing operation that truly sets NextEra apart from its peers.
The proof is in the numbers. Over the past 20 years, NextEra Energy's earnings have grown at more than twice the rate of its closest competitors.
More to the point, however, NextEra's dividend has grown at a huge 10% per year over the past decade. And management is calling for similar dividend growth over the next couple of years as well. Meanwhile, NextEra's 3.2% dividend yield is a little higher than the utility average of 2.9%, which makes it relatively attractive on the income front, as well.
But add in the rapid growth in both earnings and the dividend payment, and it basically becomes a hands-down winner for dividend growth investors looking at the utility space with an eye toward a clean energy future.
What does Brookfield Renewable do?
If you already own a utility and are happy with it, you still have choices. That's because there are a number of companies that invest only in clean energy.
One of the most attractive for dividend investors is likely to be Brookfield Renewable. You can buy the partnership share class and its lofty 6.6% distribution yield, or the corporate version and its 5.3% dividend yield. Both represent the exact same entity, with the yield difference a reflection of the higher demand for the specific corporate structured stock. (Many large investors are barred from buying partnerships.)
Unlike NextEra, Brookfield Renewable is laser-focused on clean energy, with exposure to hydroelectric, solar, wind, battery storage, and nuclear power spaces. It also has geographic diversification, with operations in North America, South America, Europe, and Asia. It is as close to a one-stop shop in clean energy as you can get.
As for the income stream investors can expect over time, the goal is to increase the disbursement by between 5% and 9% a year. So this is both a high-yield and dividend-growth story.
There is one wrinkle that investors need to understand before investing one penny, let alone $10,000 or more. Brookfield Renewable is not run like a utility, as it actively manages its portfolio. That means it buys assets when they look cheap, works to improve their value and financial performance, and then sells them if it can get a good price.
Given the broadly diversified portfolio, it is well positioned to take this approach, but it means that there is a lot more change and variability in the portfolio than you would see with a company like NextEra Energy. That might bother really conservative income investors, but it probably shouldn't stop those with a moderate risk tolerance from stepping aboard.
The clean energy runway is a long one
All that said, the reason to buy and hold NextEra Energy and Brookfield Renewable "forever" is the long-term opportunity presented by the clean energy transition. This is a shift that will likely take decades to complete, providing both of these high-yield stocks with a massive runway for future business and dividend growth.
More conservative types will probably prefer NextEra despite its lower yield, given its electric utility foundation. But if you can handle making a bigger clean energy bet, Brookfield Renewable's story is very compelling, and it comes with a notably higher yield.
Should you invest $1,000 in NextEra Energy right now?
Before you buy stock in NextEra Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and NextEra Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $699,020!*
Now, it’s worth notingStock Advisor’s total average return is863% — a market-crushing outperformance compared to173%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Reuben Gregg Brewer has positions in Brookfield Renewable Partners. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
