Despite recent troubles, it remains very difficult to argue against the future of clean energy stocks. Morningstar estimates that renewable energy will account for 45% of U.S. energy generation by 2032 — three times as much as it does now.
Clean and renewable energy could account for an even higher percentage of generation if investments become more aggressive. In either scenario investors should understand that a dollar invested today has the potential to become several dollars in the future.
The global push to reduce carbon emissions continues. Wind, solar and other renewable energy sources are vital components in progress toward that goal.
Yet, as bright as the future remains, renewable stocks have faced significant hurdles of late. Not long ago, facing a brighter outlook, many renewables made necessary high investments in order to pursue future gains. Then interest rates increased which in many cases made the calculus of those investments unprofitable.
We are now standing at the beginning of the other side with clean energy stocks again looking attractive as interest rates are expected to fall in the future. Let’s look at three such stocks.
NextEra Energy Partners (NEP)
Let’s begin by looking at NextEra Energy Partners (NYSE:NEP) and its stock. Let’s also clarify by stating that NEP is not NextEra Energy (NYSE:NEE) but instead a related subsidiary.
Both firms will continue to pop up in articles that discuss high potential return clean energy and renewable stocks. However, NextEra Energy Partners is the more concentrated play for investors who are seeking a pure renewable energy investment.
NextEra Energy consists of a utilities firm and NextEra Energy Partners, a renewable energy segment of the firm. NextEra Energy Partners is the isolated, growth-oriented limited partnership and renewable business within the company.
Both stocks are fine choices, but NEP shares expose investors to greater potential returns as the renewable energy narrative heats up again.
NEP shares have the ability to triple in price based on current forecasts. Beyond that, NEP shares also pay a dividend worth $3.52, currently yielding 13.5%. It’s also one of the biggest renewable energy generation firms on the planet which is yet another reason to consider it.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) makes sense at the moment because the firm is concentrated in the utility scale solar opportunity. The stock continues to be relatively isolated precisely because it is concentrated in that vertical.
Per the Morning Star report linked above, utility-scale solar energy is expected to be the quickest growing renewable-power vertical between now and 2032. Furthermore, it is also expected to be the vertical which will produce the most energy overall.
Generally speaking, the stability of the utility sector has shielded First Solar and its stock from the worst of the recent downturn. Furthermore, the future looks very bright. The company benefits from a backlog of energy sales that is completely full through 2026.
An article in Barron’s characterized First Solar’s strong performance relative to that of other solar stocks as the beginning of the light at the end of the tunnel. The company also benefits from economies of scale as it is the largest solar firm overall. It is abundantly apparent that FSLR stock has the ability to produce rapid gains for investors this year.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) continues to deal with a weaker environment overall for renewable energy. Yet, the stock remains intriguing for the simple fact that it is full of rebound potential and will also pay investors handsomely who are willing to invest in that narrative.
Weaker prices for wind energy resulted in net loss of $14 million in 2023 for Clearway Energy — down from a net gain of $1.06 billion a year prior. It’s very difficult to explain that away. Frankly, the company needs a stronger environment for renewable energy in order for its prices to strengthen and return to former highs.
However, the company will continue to reward investors who follow that narrative and take a bullish position. It continues to do so through its dividend policy. clear way energy increased that dividend by 1.7% at the end of the fourth quarter. That means that it is currently yielding 6.84%. So, current investors can receive nice income while chasing the stock’s price return. The company hasn’t reduced that dividend since 2019 but there is some risk given that the payout ratio is 1.88 currently.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
