While crude oil, coal and natural gas still get the lion’s share of attention, older investors should also set their sights upon renewable energy stocks.
Retirement can last 20 or 30 years, which means you can’t just lay back and only rely on income. You need a fair bit of growth to get you through your golden years.
That’s why renewable energy stocks should be on your radar — the sector continues to see widespread adoption across the globe, and has finally hit the point where many renewable energy stocks are becoming profitable.
According to nonprofit group REN21, renewable energy comprised roughly 28% of the world’s power generating capacity by the end of 2014. Last year, utilities, governments and private citizens installed a record 135 GW worth of new wind, solar, hydropower and other renewable energy capacity. And guess what? That growth in new renewable energy capacity was more than twice what new fossil fuel capacity was added.
In fact, this is the fifth year in a row that renewable energy outpaced fossil fuels in added capacity. And according to analysts, this trend will continue far into the future.
That’s a lot of “growthy” news.
Investors looking to jump into renewable energy stocks can do so in a number of ways. To help you figure out what’s right for you, we’ll look at several options — one stock, one exchange-traded fund and one mutual fund:
Renewable Energy Stocks: NextEra Energy Partners, LP (NEP)
If you’re going to go the single-stock route, you’ll need a firm that’s profitable and throws off real cash flows.
NextEra Energy Partners, LP (NEP), then, is an excellent candidate.
NEP is what’s called a yieldco. Basically, it’s a tax-advantaged vehicle for a utility — in this case, NextEra Energy (NEE) — to place solar, wind and other cash-generating renewable energy projects in. Investors and the sponsoring utilities are treated to growing dividends from long-term power purchase agreements tied to the solar and wind farms. The yieldcos grow those dividends through dropdown payments from their parent as well as buying/building out new projects.
And when it comes to dropdowns, NEP has it spades.
NEE recently got the green light to buy Hawaii’s only electric utility, which provides service to 95% of its residents. The island state has been a hotbed of solar and wind capacity and features aggressive tax breaks and subsidies. Hawaiian Electric Industries has been the leader in producing that power and features gigawatts worth of generation capacity.
And all of that can now be tucked inside of NEP.
For retirement-focused investors, NEP’s current 2% dividend should continue to grow strongly over time. That makes it one of the best renewable energy stocks to buy.
Renewable Energy Stocks: iShares Global Clean Energy ETF (ICLN)
If you’re more interested in owning a basket of renewable energy stocks, the iShares Global Clean Energy ETF (ICLN) could be the best way to get your fill.
ICLN tracks the S&P Global Clean Energy Index — a benchmark of firms involved in businesses related to solar, wind and other renewable energy sources around the globe. While the ETF holds some renewable-energy tech firms, it mostly focuses on utilities, industrials and other stocks that own solar farms, dams and the like.
In other words, ICLN is more about the generation of renewable energy — the profitable part of the business — which is a big difference compared to other ETFs tracking renewable energy stocks. Top stocks include companies like SolarCity (SCTY) and Vestas Wind Systems (VWDRY), and the fund is heavily weighted in China and the U.S., which represent more than half the fund’s weight.
That focus on generation rather than products should help ICLN over the long term — not to mention, it has produced 18% annual returns over the past few years. And while income shouldn’t be a consideration for this fund, ICLN is also delivering a yield of around 2.8% based on its twice-yearly payout.
Meanwhile, expenses run a relatively cheap 0.47%, or $47 annually per $10,000 invested.
Renewable Energy Stocks: New Alternatives Investor (NAEFX)
Type: Mutual Fund
Few mutual funds focus on renewable energy stocks, but there’s at least one that will fit retirement investors’ needs.
The New Alternatives Investor (NAEFX) began in 1982 and is the oldest mutual fund dedicated to renewable energy stocks. It’s also one of the largest at nearly $205 million in assets.
Like the previously mentioned ICLN, NAEFX is a fairly concentrated portfolio that focuses on the generation side of alternative energy. The top holdings are who’s who of major renewable energy-focused utilities and includes plenty of exposure to the various publicly traded yieldcos. Other holdings include exposure to energy efficiency measures and clean water. However, renewable energy stocks such as Abengoa Yield PLC (ABY) and Acciona SA (ACXIF) are the fund’s bailiwick, making up the bulk of assets.
On the performance side, NAEFX has been pretty decent. Over the past five years, the fund has managed to produce a 10.6% annual return — more than 2% better than its benchmark index. That has helped NAEFX earn a three-star rating.
Expenses for NAEFX run 1.37%, which isn’t outrageous for a mutual fund, though it is a bit on the high side for a mutual fund. Minimum initial investment is at least small at $2,500.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.