The global economy has been steadily transitioning to renewable energy over the years. The pace has quickened in recent years, powered by falling costs and government incentives. Demand for renewables could further accelerate in the future, fueled by a surging need for power by technology companies for cloud computing and artificial intelligence (AI) applications.
These trends play right into the hands of leading renewable energy producers NextEra Energy(NYSE: NEE), Brookfield Renewable (NYSE: BEPC) (NYSE: BEP), and Clearway Energy(NYSE: CWEN)(NYSE: CWEN.A). It makes them great energy stocks to buy and hold for their long-term total return potential.
A powerful wealth creator
NextEra Energy has been a wealth-creating machine over the years. The leading U.S. utility has generated an 11.4% annualized total return over the last 15 years. That has outpaced other utilities (6.8% annualized total return) and the S&P 500 (10.5%).
Powering its returns has been its steadily rising earnings and dividend. Its adjusted earnings per share have increased at a 9% compound annual rate over the last decade, while its dividend has grown at a 10% compound annual rate. NextEra has benefited from the steady growth in power demand from utility customers in Florida, its investments in renewable energy, and accretive acquisitions.
Those catalysts should continue powering above-average growth. NextEra expects to increase its adjusted earnings per share at or near the upper end of its 6% to 8% annual target range through at least 2027. Meanwhile, it expects to grow its dividend (which yields almost 3%) at a 10% annual rate through 2026.
Its longer-term outlook is just as bright, given the immense need for renewable energy in the future. It expects new renewables and storage capacity additions to be three times more over the next seven years, compared to the past seven years.
High-powered growth potential
Brookfield Renewable has grown briskly over the years. The leading global renewable energy company delivered 12% compound annual growth in its funds from operations (FFO) per share since 2016. Meanwhile, it has increased its dividend at a 6% compound annual rate over the last two decades.
The company should continue generating high-powered earnings and income growth. Brookfield Renewable expects a trio of organic drivers (inflation-indexed rate increases, margin enhancement activities, and its vast development pipeline) to power 7% to 12% annual FFO per share growth through 2028.
Meanwhile, it expects accretive acquisitions to drive its FFO growth rate into the double digits. The company recently agreed to acquire a European renewable energy developer with a large pipeline of projects in various stages of development. These growth drivers will give Brookfield plenty of power to achieve its aim of increasing its dividend (which yields around 5%) by 5% to 9% each year.
Another factor powering its view is its growing portfolio of sustainable solutions. Brookfield has built platforms in the carbon capture and storage, biofuel production, recycling, nuclear services, and solar panel manufacturing segments. These investments add to its long-term growth potential.
High-end dividend growth ahead
Clearway Energy is one of the country's largest producers of renewable energy. It also has a portfolio of cleaner-burning natural gas power-generating facilities. These assets produce lotsof stable cash flow, which Clearway pays out via a high-yielding dividend (recently approaching 6%).
The company expects to increase its payout toward the high end of its 5% to 8% annual target range through 2026. It has already secured and funded nearly all that growth. Clearway sold its thermal assets a few years ago and has been recycling the proceeds into higher-returning renewable energy investments. The company has committed to deploy or has line-of-sight on enough new investments to deliver on its dividend growth target.
Meanwhile, Clearway has growing visibility into its ability to increase its dividend beyond 2026. It has been renewing contracts on its natural gas power plants at high-enough rates to support low-end dividend growth in 2027. In addition, it sees several opportunities to add battery storage to its existing wind and solar projects. On top of that, it has a strategic relationship with a leading renewable energy developer, which should continue providing it with new investment opportunities.
Plugged into a powerful growth megatrend
Renewable energy demand should continue growing briskly in the coming decades. That should enable NextEra Energy, Brookfield Renewable, and Clearway Energy to increase their earnings and dividends at healthy rates.
Those growth drivers position these top energy stocks to generate strong total returns for investors over the long term. That makes them great stocks to buy and hold for long-term potential.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Clearway Energy, and NextEra Energy. The Motley Fool has positions in and recommends Brookfield Renewable and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
