Higher interest rates over the past several years have weighed on the values of many renewable energy companies. They've made it more expensive for these companies to borrow money to fund development projects and acquisitions, slowing their growth. Higher rates have also driven down the value of income-focused investments to boost their yields compared to lower-risk alternatives like bonds.
As a result, top renewable energy dividend stocksBrookfield Renewable(NYSE: BEPC)(NYSE: BEP) and Clearway Energy(NYSE: CWEN)(NYSE: CWEN.A) trade at much lower share prices and higher dividend yields. That makes them screaming buys this June. Rates should fall in the future while the tailwinds driving renewable energy demand are only growing stronger. Because of that, they could produce powerful total returns in the coming years.
Powerful growth drivers
Shares of Brookfield Renewable currently sit about 30% below their peak from a few years ago before rates started rising. That decline and a steadily rising dividend have pushed its dividend yield up to around 4.5%. That's several times above the S&P 500's average of 1.3%.
Brookfield expects to grow its already attractive payout by 5% to 9% annually over the long term. Several factors power that outlook, including its strong embedded organic-growth drivers and ability to make accretive acquisitions. Drivers like inflation-linked rate increases on existing power-purchase agreements and development projects should power 7% to 12% annual growth in its funds from operations (FFO) per share through 2028. The company has a massive development pipeline to help support the rapidly growing demand for clean power. Those organic drivers alone fully back the company's dividend-growth plan.
On top of that, Brookfield Renewable expects accretive acquisitions to help push its FFO per-share growth rate into the double digits. The company secured a record $9 billion of new investments last year ($2 billion of which it's funding on its balance sheet). It's working on several more deals this year, including a potential investment in a leading European renewable energy company.
Brookfield's combination of a high-yielding dividend and rapidly rising earnings could give it the fuel to produce total annualized returns in the double digits.
Growth secured
Clearway Energy has shed about 35% of its value from its peak a few years ago. That sell-off has driven its dividend yield up to around 6%.
The clean energy company expects to grow its high-yielding payout toward the upper end of its 5% to 8% annual target range through 2026. The main driver is its capital-recycling strategy. Clearway sold its thermal assets a few years ago and has been redeploying the proceeds into higher-returning renewable energy investments. It has committed or made offers to put all that capital to work on investments that should close over the next couple of years.
Clearway has growing visibility into its ability to continue increasing its dividend beyond 2026. Recent contract-renewal rates for its natural gas fleet could enable it to deliver dividend growth at the low end of its range in 2027 if it can secure similar pricing for its remaining uncontracted capacity. In addition, Clearway is evaluating opportunities to add battery storage to existing renewable energy assets, which could supply it with incremental income. Finally, securing outside funding to make acquisitions will become easier as interest rates start falling.
With a high-yielding and steadily growing dividend, Clearway has the power to potentially generate double-digit total annual returns in the coming years.
These bargains won't last forever
Brookfield Renewable and Clearway Energy currently trade at lower prices and higher dividend yields, mainly due to the impact of higher interest rates. However, the headwind of higher rates should eventually fade, enabling these companies to capitalize even more fully on the strong tailwind of robust renewable energy demand. Those upside catalysts make these stocks screaming buys right now. They should supply investors with attractive and growing income streams to go along with their powerful upside potential.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Clearway Energy. The Motley Fool has positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
