Do you have $5,000? Here are 5 energy stocks to buy and hold for the long term
The energy sector is constantly changing fuel sources. It is moving away from greenhouse gas emitting fossil fuels towards cleaner alternatives. This decades-long transition will require a huge investment.
Several companies have established themselves as the first leaders of the energy transition. This makes them excellent energy stocks to buy and hold for the long term. Those with $5,000 to invest in the energy transition megatrend might want to spread that capital around five of the industry’s top players: Brookfield Power (NYSE:BEP)(NYSE: BEPC), Clearway Energy (NYSE: CWEN.A)(NYSE: CWEN), Enbridge (NYSE: ENB), Kinder Morgan (NYSE: KMI)and NextEra Energy (NYSE:NEE).
Leading the Renewable Revolution
Brookfield Renewable is one of the largest renewable energy producers in the world. It holds a globally diversified portfolio of hydroelectric, wind, solar and energy transition assets. It sells this electricity under fixed-rate power purchase agreements, which allows it to generate very stable cash flows.
Brookfield has a huge backlog of renewable energy development projects to fuel future growth. It has 62 gigawatts (GW) of projects under development, enough to power 9 million homes for a year.
Along with rising electricity prices, this development pipeline will help generate 6% to 11% annual growth in its funds from operations. Additionally, Brookfield sees acquisitions add up to 9% to its bottom line each year. He sees a huge opportunity to acquire historical energy companies to accelerate their energy transition. Add to that a 3.8% dividend yield that Brookfield aims to grow 5% to 9% per year, and it could generate powerful long-term total returns.
A fully fueled dividend growth engine
Clearway Energy is one of the largest producers of renewable energy in the United States. In addition, it has a large portfolio of environmentally friendly natural gas power plants. It sells the electricity produced by these plants under long-term contracts at electric utilities and other large energy consumers. This allows it to generate stable cash flow to support its 4.4% dividend.
Clearway plans to increase this payment by up to 8% per year through 2026. The company’s forecast is fueled by its extensive portfolio of investment opportunities. Clearway already has several new investments under contract. In the meantime, she has a relationship with a developer of renewable energy projects, which gives her access to a large pipeline of future opportunities. Clearway also has sufficient funding to make new investments after agreeing to sell its thermal business for $1.9 billion. These factors give it a lot of power to increase shareholder value in the years to come.
Slow transition to cleaner fuel sources
Enbridge operates an extensive portfolio of energy infrastructure assets, including oil and gas pipelines and renewable energy generation facilities. Currently, fossil fuels provide the bulk of its cash flow. This gives Enbridge the cash to pay a healthy dividend – it currently pays 6.6% – and invest in expansion projects.
Enbridge is increasingly investing in infrastructure to support cleaner energy. It has several natural gas transmission, distribution and storage expansions underway and a growing pipeline of renewable energy and new energy projects, including several offshore wind farms in Europe. Enbridge estimates that these investments will support annual cash flow per share growth of 5% to 7% through 2024.
This should support future dividend increases, allowing Enbridge to extend a streak that currently spans 27 consecutive years. Meanwhile, Enbridge is looking for opportunities to invest in low-carbon energy, including carbon capture and storage, renewable natural gas and hydrogen. These investments could give it the fuel it needs to continue growing its dividend in the years to come.
Focused on clean fuels
Kinder Morgan is a lot like Enbridge. It operates a large-scale energy infrastructure business currently focused on fossil fuels. This gives it the cash to support its 6.6% dividend and invest in expansion projects.
It is increasingly investing in projects to support the production and circulation of cleaner fuels. In addition to expanding its industry-leading natural gas network, Kinder Morgan is building renewable natural gas generation facilities and renewable diesel generation centers. Meanwhile, it is exploring opportunities to leverage its existing infrastructure to support carbon and hydrogen capture and storage. This focus on clean fuels infrastructure should give Kinder Morgan the power to continue to grow its dividend.
A leader in renewable energies
NextEra Energy is the world leader in power generation from wind and solar. It is also a leader in energy storage. These businesses provide the company with stable cash flow to support a 2.3% dividend yield and the continued expansion of its clean energy infrastructure.
NextEra believes it can grow its earnings per share by 10% this year and up to 8% per year through 2025. This should support annual dividend growth of around 10%. This steady growth from an industry leader makes NextEra Energy an easy energy stock to hold for the long term.
A quality energy portfolio to be maintained during the transition
The decades-long transition to cleaner energy sources will likely have many winners, so it makes sense to build a basket of energy stocks positioned to thrive on this megatrend. Top options include Brookfield Renewable, Clearway Energy, Enbridge, Kinder Morgan, and NextEra Energy. They are industry leaders, which should allow them to continue to grow their businesses, profits and dividends. These factors make them seem likely to win long-term investments.
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Matthew DiLallo owns Brookfield Renewable Corporation Inc., Brookfield Renewable Partners LP, Clearway Energy, Inc., Enbridge, Kinder Morgan and NextEra Energy. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc., Enbridge, Kinder Morgan and 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.