The topmost concern relating to investing in renewable energy companies is their generally erratic performance. Even after decades, the industry is still evolving. It may take several more years, if not decades, before companies in the renewable energy space start generating steady profits. However, in such a backdrop, there are some companies that are not only generating steady cash flows but are also paying hefty dividends to their shareholders. Here are three renewable energy companies that look set to grow in the long run.
Algonquin Power & Utilities
Algonquin Power & Utilities (AQN -4.47%) right now offers a dividend yield of 3.8%. The company derives one-third of its income from renewable generation and two-thirds from rate-regulated electric, gas, and water utilities. In the last ten years, the company grew its dividend at an impressive compound annual growth rate of 10%.
Algonquin's cash flow growth supported its healthy dividend growth over the years.
AQN Cash from Operations (Annual) data by YCharts
Further, between 2021 to 2025, Algonquin Power & Utilities expects to grow its per share adjusted earnings by 8%-10%. The company plans to invest $9.4 billion on capital projects from 2021 through 2025. Of this amount, Algonquin expects to spend $3.1 billion in its renewable energy business. These investments should drive its earnings growth in the coming years. With an impressive growth track record, an attractive yield, and a solid investment plan, Algonquin Power & Utilities is a great stock to buy right now.
Clearway Energy
Clearway Energy (CWEN -4.43%) offers an appealing yield of more than 4%. The stock has fallen around 21% off its high in 2021, pushing its yield higher. Clearway Energy derives nearly half of its revenue from its renewables business. The company has steadily grown its operational cash flow over the years.
In March, based on the progress in its growth projects, Clearway raised its pro forma cash available for distribution (CAFD) guidance for 2021 to $385 million from $345 million. It generated CAFD of $295 million in 2020.
AQN Dividend data by YCharts
In 2020, Clearway Energy derived 34% of its revenue from Southern California Edison and 18% from PG&E (PCG -10.91%). The company, which had to cut its dividend in 2018 following PG&E bankruptcy, has raised its dividend back to almost the level prior to the cut. PG&E emerged from bankruptcy in July last year, and kept its contractual commitments to Clearway and others.
Meanwhile, Clearway continues to diversify its customer base to reduce its risks. For example, revenue contribution in percentage terms from Southern California Edison has fallen from 40% in 2018 to 34% in 2020. Similarly, PG&E's contribution is down from 23% in 2018.
With a healthy projects backlog and renewable energy's significant growth prospects, Clearway Energy stock looks poised to grow in the long term.
Atlantica Sustainable Infrastructure
After falling around 16% off its high this year, Atlantica Sustainable Infrastructure (AY) is right now offering an alluring yield of 4.3%. The company generates nearly 70% of its cash flows from renewable energy operations. The company's assets are spread across North America, South America, and Europe. Algonquin Power & Utilities holds a 44.2% stake in Atlantica Sustainable Infrastructure.
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Atlantica Sustainable has grown its cash flow and dividend steadily since 2016, after separating from parent Abengoa. In 2020, the company grew its CAFD by 5.5%. The company expects a 15% growth in its CAFD in 2021 driven by recent growth investments. In the mid-term, it expects to grow CAFD per share at 5% to 8%. Atlantica plans to invest around $300 million on growth projects each year through 2023 that should drive its cash flow growth. It spent $302 million on growth projects in 2020.
A steady growth in cash flow and dividend, coupled with healthy growth investments, makes Atlantica Sustainable's 4.3% yield tempting right now.
