The world is entering an unprecedented period. It's estimated that the economy will need to more than double its electricity-generating capacity over the next 20 years to meet the surging demand for power from things like electric vehicles and data centers. At the same time, it will need to replace about half of its current capacity due to age and higher carbon emission profiles. That outlook suggests that the world will build a massive amount of power generation capacity in the future, with renewables likely to lead the way.
Because of that, renewable energy stocks look like a no-brainer long-term investment right now. Brookfield Renewable(NYSE: BEPC)(NYSE: BEP) and Clearway Energy(NYSE: CWEN)(NYSE: CWEN.A), each trading around $30 per share, are two top options for those with around $1,000 to invest these days.
Powerful growth ahead
Brookfield Renewable is a leading global producer of renewable energy. It operates hydroelectric, wind, utility-scale solar, and energy storage facilities in North and South America, Europe, and Asia. It currently has 34 gigawatts (GW) of operating capacity, enough to power over 25 million homes. It sells this power to utilities and large corporate buyers under long-term, fixed-rate power purchase agreements.
Those agreements provide Brookfield Renewable with stable cash flow. It pays out the majority of its steady income via dividends. Its dividend currently yields more than 4.5%. At that rate, it could turn a $1,000 investment into more than $45 of annual passive dividend income.
Brookfield Renewable expects to grow its already high-yielding dividend by 5% to 9% annually over the long term. Its organic growth drivers alone (inflation-driven rate increases, margin enhancement activities, and development projects) can power that plan (7% to 12% annual FFO per-share growth through 2028). On top of that, it expects to continue making acquisitions. That factor helps power Broofkfield's view that it can deliver 10%+ FFO per share growth during that period.
The company has already lined up a staggering 230 GW pipeline of future renewable energy development projects, of which 65 GW are in advanced stages. It expects to develop about 10 GW of projects annually over the next several years.
Meanwhile, it's in the process of enhancing its already robust growth prospects by acquiring leading European renewable energy company Neoen. Brookfield and its partners have agreed to purchase a majority interest in the company and intend to buy out its remaining shareholders after closing the initial deal. Neoen has 8 GW of operating and under-construction projects and another 20 GW in its advanced-stage development pipeline. Brookfield and its partners also recently bolstered their leading renewable energy operations in India and made their first investment in Korea.
A clear path to grow
Clearway Energy is a leading clean power producer in the U.S. It has 9 GW of renewable energy and environmentally sound natural gas power generation capacity. These assets generate predictable cash flow, which Clearway uses to pay an attractive dividend (currently yielding 5.5%).
The clean power company expects to grow that payout toward the upper end of its 5% to 8% annual target range through 2026. Powering that plan is its capital recycling strategy. It cashed in on its thermal assets a few years ago and is reinvesting the proceeds into higher-return renewable energy investments.
Clearway Energy empowers renewable energy developers to build more capacity by acquiring operating projects. That enables them to recycle that capital into new developments. It has committed or offered to buy several renewable energy projects that should enter commercial service over the next couple of years. That gives it lots of visibility into its ability to grow its cash flow per share.
Meanwhile, the company has already started recontracting its natural gas capacity. Rates are coming in high enough that this catalyst alone could support dividend growth toward the low end of its target range in 2027. In addition, the company has the financial capacity to continue acquiring renewable energy projects from developers in the future to keep pushing its payout higher. Given the tremendous need for renewable energy, Clearway should have plenty of opportunities to continue expanding its portfolio in the future.
Powerful total return potential
The world will need a lot more renewable energy in the future. That plays right into the strategies of Brookfield Renewable and Clearway Energy. They should be able to continue growing their earnings at robust rates, which should allow them to increase their dividends at a healthy pace. That combination should give them the power to produce strong total returns, making them look like no-brainer buys right now.
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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.
