The U.S. is going to need a lot more electricity in the coming years. Demand drivers such as artificial inteligence (AI) data centers, the onshoring of manufacturing, and the electrification of everything will power a 55% surge in electricity demand by 2040, according to some estimates. Given the continued concerns surrounding climate change, this power will need to come from cleaner sources, including renewables, natural gas, and nuclear.
This forecast makes energy companies focused on supporting growing electricity demand look like no-brainer investments right now. Three leaders in the sector are Brookfield Renewable (NYSE: BEPC)(NYSE: BEP), Enbridge(NYSE: ENB), and NextEra Energy(NYSE: NEE). Given their exposure to the power megatrend, they could produce strong total returns in the coming years.
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Powerful total return potential
Brookfield Renewable is a leading global renewable energy and sustainable solutions company. It has a diversified portfolio of renewable assets, consisting of hydro, wind, and solar, and investments in nuclear services, solar panel manufacturing, and biofuel production. Those assets produce very stable cash flow, giving Brookfield the funds to pay an attractive 5.5% dividend while investing heavily in growing its platforms.
The company expects its existing assets to grow its funds from operations (FFO) at a 4% to 7% annual rate through at least the end of the decade, powered by inflation escalation in its long-term contracts and initiatives to boost its margins. Meanwhile, Brookfield has a vast pipeline of renewable energy and sustainable solutions projects under construction and in development. This project backlog should add another 4% to 6% to its FFO per share each year. Add in accretive acquisitions, and Brookfield believes its annual FFO per share growth rate will be above 10% for the foreseeable future.
That earnings growth should give it the power to increase its already high-yielding dividend by 5% to 9% annually. This combination of growth and income positions Brookfield to produce total annual returns in the mid-teens in the coming years.
Visible growth through the end of the decade
Enbridge is a leading North American energy infrastructure company. It operates liquids pipelines, natural gas transmission assets, and natural gas distribution and storage businesses, and it has a renewable power platform. The company has been increasingly investing in cleaner energy infrastructure, including natural gas and renewables.
The company's existing assets produce stable earnings backed by long-term contracts and government-regulated rate structures. It uses that money to pay a lucrative 5.9% dividend and invest in building and buying additional energy infrastructure. Enbridge currently has a multibillion-dollar backlog of commercially secured capital projects under construction that should come online through 2029.
That backlog gives Enbridge lots of visibility into its future earnings growth. The company expects to grow its cash flow per share by around a 3% compound annual rate through next year, which should accelerate to around 5% per year post-2026 as some current tax headwinds fade. That should enable the company to increase its dividend at a similar rate. Given its high dividend yield, its low-to-mid single-digit earnings growth should give Enbridge the fuel to produce double-digit total annual returns.
Investing heavily in supporting growing electricity demand
NextEra Energy operates one of the country's largest electric utilities (Florida Power & Light) and has one of the world's largest renewable energy platforms (NextEra Energy Resources). Those businesses generate very stable cash flow, which the company pays out in dividends (nearly 3.5% current yield) and invests in growing its operations.
The utility plans to invest a staggering $120 billion into American energy infrastructure over the next four years. The company is investing heavily in supporting the growing electricity demand in Florida, including installing significant solar energy capacity. It also has a large and growing backlog of renewables and storage projects to support the electricity needs of other utilities and large corporate power buyers within its energy resources segment.
This investment level should help grow its adjusted earnings per share at or near the top end of its 6% to 8% annual target range through at least 2027. NextEra's earnings growth rate and lower dividend payout ratio position it to increase its dividend by around 10% annually through at least next year. That growth and income combination also puts NextEra Energy on track to produce double-digit total annual returns in the future.
Highly visible income, growth, and return potential
There's no sure-fire investment that's guaranteed to deliver a strong return in the coming years. However, given the expected surge in power demand, Brookfield Renewable, Enbridge, and NextEra Energy are in strong positions to produce robust total returns in the coming years. That makes them look like no-brainer energy stocks to buy right now.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Enbridge, and NextEra Energy. The Motley Fool has positions in and recommends Enbridge and NextEra Energy. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
