Electric vehicles. Hydrogen power. Battery technology. The hype around clean energy investments hit stratospheric heights in 2020 and 2021. But in 2022, many investors have felt the air seep out of the clean energy bubble, and many of these stocks are down 80% or even more than 90%. There is a ton of risk in buying into these early-stage clean energy companies since most of them are losing money or not even generating any sales at the moment.
But the risk-levels aren't the same with all energy companies. If you want to invest in the clean energy revolution but don't want to add high-risk stocks to your portfolio, utility Xcel Energy (XEL -0.06%) is a perfect dividend stock for you.
Xcel Energy: an energy utility with a great track record
Xcel Energy is a standard electric and natural gas utility. It has operations ranging throughout the middle of the United States, from the upper Midwest in Wisconsin and Minnesota to Colorado, New Mexico, and Texas. As of this writing, it has 3.7 million electricity customers and 2.1 million natural gas customers. The company has consistently grown over the years, putting up a total return of more than 6,000% since going public.
Utilities are regulated by the government, which makes them reliable businesses but curbs extreme upside potential. Xcel, being one of these regulated utilities, earns a fixed rate of return on all the capital it has invested in energy assets. The only way it can grow its earnings power is by investing in more assets and energy infrastructure, which management plans to do. Luckily for Xcel, its geographies like Texas have experienced consistent population growth (which correlates to energy usage growth), giving Xcel more and more demand each year.
The company is also one of the most progressive utilities when it comes to adopting renewable energy solutions for its customers. Xcel has invested heavily in solar and wind projects across its different geographies, giving it a great relationship with its customers and political regulators as it decreases costs and its carbon footprint.
Taking advantage of government incentives
The clean energy focus will become an even greater advantage for Xcel Energy once the new U.S. government benefits come into play as a part of the Inflation Reduction Act. For example, its new Sherco Solar project will now cost 30% less to build and will come with enormous tax benefits, which are both positives for Xcel's shareholders. With these new tax breaks, Xcel is accelerating its renewable energy investments and plans to go entirely off of coal by 2030.
On a longer time frame, Xcel plans to have the capability to power all of the transportation within its geographies with carbon-free energy by 2050. This will require massive investments that will be accelerated with the help of the federal government. More investment equates to a larger asset base, which, as I mentioned above, equates to larger income brought in by the company.
Consistent dividend-per-share growth
As Xcel invests more tax-advantaged dollars in clean energy infrastructure, its asset base should rise. Under current utility rules, that means it will be able to grow its earnings in lockstep with its asset base, giving management a growing stream of income it can return to shareholders each year. Over the long term, management expects to grow its earnings per share (EPS) by 5% to 7% per year while also growing its dividend payouts at the same rate.
Data by YCharts.
Over the last 10 years, Xcel Energy has consistently grown its dividend per share, and it is up around 80% over that time span. The stock currently has a dividend yield of 3%, which isn't super high, but it should grow consistently over the next 10 to 20 years as its dividend per share rises. If you want to buy a stable, low-risk dividend payer and own it for multiple decades, Xcel Energy is as good a bet as any to add to your portfolio.
