The energy industry has reached a major inflection point. It was already slowly transitioning to cleaner energy sources to combat the potentially worse impacts of climate change. Now, demand for electricity is on track to accelerate in the coming years, powered by the electrification of transportation and increased digitalization, including an expected surge in demand by power-hungry artificial intelligence (AI) data centers.
Given that outlook, several energy stocks look like compelling buys these days. Brookfield Renewable (BEPC -0.94%) (BEP -0.94%), Clearway Energy (CWEN.A -1.39%) (CWEN -1.35%), and NextEra Energy (NEE -0.74%) stand out to a few Fool.com contributors as the best ones to buy for those with $1,000 to invest right now. Here's why they like that trio the best.
Brookfield Renewable is being opportunistic like always
Reuben Gregg Brewer (Brookfield Renewable): A strange pair of trends is taking shape at Brookfield Renewable. On the one hand, it is selling assets at prices it thinks are attractive. On the other hand, it is using the proceeds from those sales to buy investments it thinks are attractively priced. The confounding fact here is that both assets are in the same sector: clean energy. That's not as odd as it sounds.
After a period in which Wall Street was willing to fund just about anything related to clean energy, the sector is now facing much more difficult financial constraints. Financially strong businesses are doing fine and are still attractive, while financially weak businesses are being left on the discount pile. Brookfield is selling well-capitalized, cash-generating clean energy businesses and buying weak ones, which is really just an extension of the opportunistic approach it has always taken.
Once in-house, Brookfield uses its investment-grade-rated balance sheet to recapitalize troubled businesses. It also works to improve its operating performance based on its long history of success in the clean energy space.
It's not rocket science; Brookfield Renewable is simply leaning into its business strengths. And that's leading to strong performance for investors, noting that funds from operations (FFO) grew 11% year over year in the third quarter of 2024. But since Wall Street's excitement over clean energy has waned, long-term investors can collect a yield as high as 5.6% by buying Brookfield Renewable and its opportunistic exposure to a growing piece of the broader energy industry.
Extending its growth outlook
Matt DiLallo (Clearway Energy): Clearway Energy made a brilliant move a few years ago. The clean energy infrastructure company cashed in on the value of its thermal assets, selling them to private equity giant KKR for over $1.3 billion in net proceeds. It has been recycling that capital into higher-returning renewable energy investments ever since.
The company has committed to investing all the proceeds from that sale into deals that should close in the coming quarters, giving it a lot of visibility into its growth over the next few years. Clearway expects to generate about $2.08 per share of cash flow available for distribution (CAFD) next year.
That should support dividend growth toward the upper end of its 5% to 8% annual target range. Meanwhile, it expects to grow its CAFD per share by 7.5% to 12.5% in 2026 as the balance of its secured investments enters commercial service. That should support another 6.5% dividend increase in 2026.
Meanwhile, Clearway Energy has increasing visibility into its growth in 2027 and beyond. It believes it can grow its CAFD per share at a 5% to 8%+ annual rate starting in 2027, which should support dividend growth in the bottom half of its target range while keeping its payout ratio within a reasonable range (70%-80%).
The company can support its longer-term growth with retained cash after paying dividends and its solid balance sheet. Given the tremendous need for new renewable energy developments, there should be no shortage of investment opportunities.
Clearway Energy currently pays a 6%-yielding dividend, implying that a $1,000 investment could generate $60 (and growing) of dividend income each year. Add that to its mid- to high-single-digit earnings growth rate, and Clearway could easily produce double-digit total annual returns in the coming years.
This stock has solid long-term growth potential
Neha Chamaria (NextEra Energy): The Department of Energy (DOE) projects U.S. demand for power will grow by 15% to 20% over the next decade. The DOE also expects clean energy resources to meet the rising demand for electricity. One company stands to benefit from both trends, making it a great energy stock to buy now -- NextEra Energy.
NextEra Energy is not only the largest utility in the U.S. but also the world's largest producer of wind and solar energies and a leader in battery storage. Management knows NextEra Energy can capitalize on the massive opportunities of rising power demand and clean energy growth and has already outlined plans to invest nearly $100 billion between 2024 and 2027.
That's a huge investment that is expected to more than double NextEra Energy's renewables and storage capacity by 2027. Management expects adjusted earnings per share (EPS) to grow by 6% to 8% through 2027 and dividend per share to grow by nearly 10% through 2026.
NextEra Energy has generated strong returns for shareholders over the past couple of decades, growing its adjusted EPS and dividend by nearly 9% and 10%, respectively, between 2003 and 2023. That growth has translated into solid returns for shareholders over the years, and I expect the trend to continue.
