Even with the headwind brought on by the novel coronavirus pandemic, renewable energy capacity surged by 45% in fiscal year 2020. The International Energy Agency views it as a part of the “unprecedented boom.” It goes without saying that renewable energy stocks are an attractive long-term investment. And it would be an additional bonus for investors if renewable energy stocks provide regular dividend income.
Some $3.4 trillion is likely to be invested in the sector through 2030. Of this, $2.72 trillion of investment is likely to be allocated toward wind and solar energy.
Of course, growth for the renewable energy sector is likely to sustain even beyond 2020. For now, quality companies in the renewable energy sector will continue to deliver healthy top-line and cash flow growth. Given this view, dividend stocks in the sector are likely to witness steady dividend upside.
Let’s talk about seven renewable energy stocks that are worth holding in the portfolio for their dividend income. These companies are also likely to report steady top-line and EBITDA growth in the next few years.
- NextEra Energy (NYSE:NEE)
- Clearway Energy (NYSE:CWEN)
- Polaris Infrastructure (OTCMKTS:RAMPF)
- Albemarle Corporation (NYSE:ALB)
- Northland Power (OTCMKTS:NPIFF)
- Brookfield Renewable Partners (NYSE:BEP)
- NextEra Energy Partners (NYSE:NEP)
Renewable Energy Stocks That Also Pay Dividends: NextEra Energy (NEE)
NextEra Energy stock is worth considering for dividends and potential stock upside. In the last six months, the stock has been sideways and it seems like a good accumulation opportunity. Currently, NEE stock offers an annual dividend of $1.54 per share, which implies a healthy dividend yield of 2.1%.
As an overview, NextEra is among the top renewable energy companies. The company has a focus on solar and wind energy. Between 2019 and 2022, the company expects total capital deployment of $60 billion. Furthermore, over the next three years, the company expects to build 23GW to 30GW in capacity.
Clearly, strong growth is likely to sustain for the company. Importantly, NextEra Energy has a strong balance sheet to pursue aggressive growth. It’s also worth noting that the company expects decline in wind and solar energy cost over the next few years. This is likely to have a positive impact on the EBITDA margin.
For the first quarter of 2021, Next Era reported operating cash flow of $1.3 billion. This would imply an annualized cash flow of $5.2 billion. The company expects healthy dividend growth to sustain as new projects further increase the cash flow visibility.
NEE stock also seems reasonably valued at a forward price-to-earnings-ratio of 29.1. After consolidation, an upside seems imminent.
Clearway Energy (CWEN)
Among renewable energy stocks, Clearway Energy is another attractive name with a robust dividend yield of 4.94%. Additionally, CWEN stock trades at a forward P/E of 20.0, which seems attractive considering broad market valuations.
Clearway currently has a diversified portfolio of 8 gigawatts in assets. (1 GW can power about 300,000 homes for a year.) This includes solar, wind, conventional and thermal assets. Additionally, the company has a 10 GW pipeline of projects. Of this, 5.8 GW are late-stage projects. This provides the company with clear growth visibility.
It’s worth noting that Clearway reported cash and equivalents of $831 million as of Q1 2021. This provides the company with flexibility to pursue organic growth and acquisitions. In April 2021, the company acquired Mt. Storm, which is a 264-megawatt wind asset in West Virginia.
In terms of dividends, Clearway has guided for annual dividend growth in the range of 5% to 8% through 2023. Therefore, the dividend yield of 5% is attractive for the next few years even if the stock is largely sideways.
Polaris Infrastructure (RAMPF)
Polaris Infrastructure is an attractive name among small-cap renewable energy stocks. The stock is a screaming buy at a forward P/E of 10.9. Further, a dividend yield of 3.9% also makes the RAMPF stock worth considering.
Polaris Infrastructure has been focused on renewable energy projects in Latin America. Currently, the company has geothermal and hydroelectric projects. As of March 2021, the company reported 72 MW geothermal project in Nicaragua. Additionally, the company had three run-of-river hydroelectric facilities in Peru.
From a financial perspective, the company reported $109.7 million in cash and equivalents. This provides ample headroom for investing in growth projects. Further, for Q1 2021, the company reported $9.4 million in operating cash flows. This would imply an annualized OCF of nearly $40 million.
Therefore, Polaris Infrastructure has healthy cash flows to sustain dividends. CEO Marc Murnaghan also mentioned in the Q1 2021 report that “the Company is actively pursuing further diversification of its portfolio through strategic acquisitions.”
This would help in accelerating top-line growth in addition to visibility for higher dividends in the next few years.
Albemarle Corporation (ALB)
Electric vehicles have an important role to play in the push towards cleaner energy in the coming decade. So, it’s not surprising that demand for lithium has surged. By 2024, global lithium demand is likely to double. As an integrated lithium company, Albemarle is therefore attractive.
ALB stock has surged by 100% in the last 12 months. Further upside seems likely after some consolidation. The stock also offers an annualized dividend of $1.56.
The lithium segment is well positioned for annual revenue well in excess of $1.0 billion in 2022. The company reported segment revenue of $279 million for Q1 2021. For the period, the company’s EBITDA margin was 38%. Albemarle expects Kemerton and La Negra asset expansion to add to commercial volume starting in 2022.
It’s important to note that the company believes that the lithium industry growth is likely at 20%. Over the next five years, the segment can therefore be a significant cash flow driver.
Currently, the company has a strong balance sheet to initiate investments to drive long-term growth. For Q1 2021, the company’s net-debt-to-adjusted-EBITDA was 1.7. With a long-term leverage target in the range of 2.0 to 2.5, the company has the scope to leverage for expansion.
Northland Power (NPIFF)
Northland Power stock, which currently offers a dividend yield of 2.75%, is another attractive name among renewable energy stocks.
Northland believes that renewable energy transition requires $4.3 trillion in investment through 2030. During this period, the offshore wind energy segment is expected to grow at a CAGR of 12.7%. The company is already among the top ten players globally in the wind energy segment.
In terms of expansion, the company has a growth pipeline of 13 GW to 14 GW. Of the potential pipeline, nearly 12 GW is related to offshore wind projects. In April 2021, the company also acquired 540 MW in operating wind and solar portfolio in Spain. Acquisition is likely to help the company accelerate growth and build global presence.
Northland plans an investment of $15 to $20 billion over the next five years. A majority of the growth plan is likely to be funded through non-recourse debt. With healthy cash flows, leveraging is unlikely to be a concern. For the current year, the company has guided for an adjusted EBITDA of $1.1 billion.
Overall, NPIFF stock looks like a quality name in the renewable energy sector. The company’s focus on the offshore wind sector is likely to create shareholder value in the next decade.
Brookfield Renewable Partners (BEP)
Brookfield Renewable Partners has been operating a robust portfolio of renewable energy assets with stable cash flows. BEP stock has an attractive dividend yield of 3.1%.
The company’s portfolio currently consists of 21,000 GW capacity with presence in North America, South America, Europe and Asia. Brookfield has a focus on hydro and wind energy with 74% of energy generation from these assets.
From a dividend perspective, Brookfield is targeting an annual cash distribution increase of 5% to 9% over the next few years. This is very likely considering the growth plans. Therefore, BEP stock is worth considering for income investors.
In term of expansion, Brookfield has 27 GW in developmental pipeline. Once these projects are operational, cash flow is likely to double from current levels.
I don’t see growth financing as a concern. Currently, the company has a liquidity buffer of $3.4 billion. Further, the company has an investment grade rating of BBB+. Therefore, growth is likely to sustain for Brookfield coupled with sustained increase in cash distribution.
NextEra Energy Partners (NEP)
Exposure to a limited partnership is another way to benefit from the renewable energy sector boom. NextEra Energy Partners stock has been moderately higher by 15.6% in the last six months. However, the stock has a cash distribution yield of 3.43%, which seems sustainable.
NextEra currently has a portfolio of 5,830 MW of renewables, which is largely weighted towards wind energy. Additionally, the partnership unit has 4.3 Bcf of natural gas pipeline capacity. The partnership unit has long-term contracts (15 years in contract life) with credit-worthy counterparties. This ensures stable cash flows and cash distribution to unit holders.
From a financial perspective, NextEra Energy has a credit rating of BB with a stable outlook from S&P. With a healthy balance sheet, the company is positioned for steady growth through asset acquisition from the parent.
It’s worth noting that between 2020 and 2024, NextEra Energy Partners expects annual average cash distribution growth in the range of 12% to 15%. Therefore, NEP stock is worth holding for income investors.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.