The energy industry faces an uncertain future. While the global economy still needs fossil fuels, it is quickly turning to cleaner sources of energy. This transition makes it difficult to determine the best places to invest in the years to come.
We asked three Motley Fool contributors their favorite energy stock picks for 2022 and beyond. they underlined Enbridge (NYSE: ENB), Brookfield Renewable Power (NYSE: BEP)(NYSE: BEPC), and NextEra energy partners (NYSE: NEP). Here’s why they’re so optimistic about their future.
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If I had to choose just one
Reuben Gregg Brewer (Enbridge): I have two names of oil, TotalEnergies and Enbridge, and plan to keep both for years to come. However, if I had to pick just one, I would probably go with North American giant Enbridge. There are a number of reasons for this, but the most notable is that it operates a largely fee-based business that essentially collects tolls based on the use of its assets. This means that the price of oil and natural gas is less important than the demand for these vital global fuels. It’s a pretty consistent business.
In addition, Enbridge has a dividend yield of approximately 7% backed by over 25 years of annual dividend increases (this is the territory of Dividend Aristocrat). There is no particular reason to expect this streak to end, given that the company has just provided financial guidance that calls for distributable cash flow growth of 5% to 7% per annum up to ‘in at least 2024. She also increased the dividend, again, and announced a major share buyback.
ENB data by YCharts.
In addition to all of this, Enbridge is also developing a clean energy business. It’s small today (about 3% of adjusted earnings before interest, taxes, depreciation, and amortization), but there are decades before carbonaceous fuels are replaced by clean energy. The company therefore has ample time to expand this division with its current investments in wind power and future technologies, such as carbon capture.
The best part of the story, however, is that Enbridge is essentially using its oil profits to fund its transition to clean energy, which in my opinion is a great compromise between today’s needs and the clean energy of tomorrow.
An undervalued renewable energy stock
Neha Chamaria (Brookfield Renewable Power): As 2022 approaches, there is one prediction I can confidently make for the year: renewables will attract the attention of more leaders and nations, and the share of alternative fuels in capacity and Global electricity production will continue to increase. Based on that idea, I would choose Brookfield Renewable as my preferred energy choice for 2022 and beyond, especially after the stock has fallen 21% so far this year.
Brookfield Renewable enters 2022 on a solid footing, having generated record funds from operations (FFOs) in its third quarter. By the end of the third quarter, Brookfield Renewable had invested nearly $ 2.4 billion in growth, split between solar, wind, hydropower and green hydrogen. Green hydrogen is, in fact, a relatively new field in which the company is venturing because it sees significant potential in it.
Even beyond 2022, Brookfield Renewable has strong growth potential as it sees FFO per share rise almost 20% upwards through 2025 if it can continue to find lucrative acquisition opportunities. As its FFO grows, its dividend is expected to rise, as Brookfield Renewable not only commits to paying a sustainable dividend, but aims to grow it by 5% to 9% each year. Brookfield Renewable Partners stocks are also returning a solid 3.5% right now, so this is an attractive energy stock to own.
Strong growth in future dividends
Matt DiLallo (NextEra Energy Partners): NextEra Energy Partners sets itself apart with its dividend growth forecasts. He plans to increase his above-average dividend (currently making 3.2%) at an annual rate of 12% to 15% until at least 2024. It is one of the fastest growing sources of income in the energy sector.
Two factors help fuel the business plan. First, it has a large set of acquisition opportunities. Its parent company, the giant utility NextEra Energy (NYSE: NEE), has a massive portfolio of renewable energy assets in operation and an equally large portfolio of development projects. For this reason, NextEra Energy Partners should be able to perform a constant flow of drop-down transactions to help increase its cash flow and dividends. In addition, he can continue to buy assets from third parties.
The company recently made deals with the two sources. He agreed to buy a 100 megawatt wind farm in California from a third party and acquire a 50% stake in a 2.52 gigawatt renewable energy portfolio from NextEra.
Meanwhile, the company has sufficient financing capacity. Private equity funds have provided it with a steady stream of funding convertible equity portfolios to help it close acquisitions. For example, Apollo Global Management provided one to support its latest rolling agreement. It is one of the many financing levers he can pull to close business.
NextEra Energy Partners believes that its combination of attractive yield and robust dividend growth will generate high total returns of 15% to 18% per year until at least 2024. This potential for high returns makes them an excellent energy security to buy for the long term.
10 stocks we prefer at Enbridge
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Matthew DiLallo owns Brookfield Renewable Corporation Inc., Brookfield Renewable Partners LP, Enbridge, NextEra Energy and NextEra Energy Partners. Neha Chamaria does not have a position in any of the stocks mentioned. Reuben Gregg Brewer owns Enbridge and TotalEnergies. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc. and Enbridge. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
