These 3 dividend-paying renewable energy stocks can help you weather a stock market crash
An often underestimated part of the renewable energy industry is the role that financing and owning renewable energy assets has on the industry. Without low-cost financing, renewables would not be competitive with fossil fuels, as projects have to be funded over decades to justify the initial cost.
This has opened up a multibillion dollar industry for financial companies and utilities who grab renewable energy projects around the world. Considering how quickly the industry is growing, three Fool.com contributors believe Hannon Armstrong (NYSE: HASI), NextEra Energy (NYSE: NEE), and Energy of Domination (NYSE: D) are today the main dividend-paying renewable energies.
A diversified dividend from renewable energies
Travis Hoium (Hannon Armstrong): There are a number of ways to generate returns in renewables, such as owning power generation assets, owning land on projects, or even funding efficiency improvements. What I love about Hannon Armstrong is that he is involved in any renewable energy market where he can generate a predictable rate of return. This allows management to shift investments to areas with the highest return versus risk.
Management expects to increase distributable earnings per share from $ 1.55 in 2020 to between $ 1.90 and $ 2.06 by 2023, a compound annual growth rate of 7% to 10%. And the dividend is expected to reach between $ 1.49 and $ 1.57 over the same time frame, which is a 2.6% mid-term return based on today’s share price. .
As the market for renewable energy assets becomes more competitive, I believe companies with the ability to invest in a diverse group of assets will be more valuable. Hannon Armstrong has been able to find unique and investable assets, which contributes to the growth of his business. In 2016, the return on the company’s portfolio was 6.2% with a return on distributable equity of 10.1%. In 2020, the portfolio return reached 7.6% and the distributable return on equity reached 10.7% even as interest rates fell. This shows the ability of management to implement improved performance as the business grows. This is why it is now a high dividend security in the renewable energy sector.
Stability when you need it
Howard Black-smith (NextEra Energy): Many people fear serious market reversals, as previous gains on paper can quickly evaporate. In reality, investors who put themselves in a position to profit from stock declines help set up their portfolios for outsized gains in a rally. Being in this position requires not only having cash to invest at the right time, but also the mental courage to put it to work when others panic. It’s easier said than done when the headlines are screaming about falling stock values.
Many names in renewables are aggressive – even speculative – investments in alternative energy and developing technologies. But NextEra Energy has interests in a mix of renewable energy assets in addition to being the parent company of traditional utilities Florida Power & Light and Gulf Power. These utilities make NextEra Energy the largest integrated utility in the United States, measured by megawatt-hour retail sales.
Renewable energy-focused companies, including solar, wind, hydrogen, or other alternative sources, will generally respond as aggressive investments normally do during downturns – with above-average volatility resulting in downturns. drops that can make homeowners particularly nervous. But while NextEra offers investors the positive side of growth that aggressive investing brings, its regulated utilities are expected to provide ballast to investors in the storm of a stock market crash.
For this, investors must accept a slightly lower dividend yield than many expect from a utility. At its recent market price, NextEra’s dividend represents a yield of 1.84%. But an investment in NextEra has the advantage of a renewable energy segment that is expected to generate above-average growth over the long term and allow investors to feel more secure and ready to find promising investment opportunities when the market will correct itself.
The stability allows NextEra management to expect dividend per share growth of at least around 10% until next year. And the growing renewables segment helps them confidently tell investors that they “will be disappointed” if the financial results do not fall “at or near the upper end” of the expected range for earnings growth. adjusted share between 6% and 8%. until at least 2023. This balance can help investors feel more secure in weathering the next stock market crash.
A balanced utility that has the wind in its sails
Daniel Foelber (Dominion Energy): I agree with Howard that NextEra Energy is a leading renewable energy store that can thrive in the future. As an investment, its combination of stable earnings growth, a leading portfolio and dividend increases make for a unique and attractive offering.
A similar investment is Dominion Energy. It’s another utility with a less consistent track record than NextEra, but it’s offered at a lower price and with a higher annual dividend yield of 3.3%.
Investors might raise eyebrows as Dominion Energy’s quarterly dividend is now $ 0.63 per share, two-thirds of what it was a year ago. Still, there is an argument that Dominion’s cut was the right move for his business.
After losing billions of dollars to the failure of the Atlantic Coast Pipeline, Dominion has worked hard to adjust its strategy to invest in more profitable assets. That kind of thinking has led him to a higher concentration of investments in renewables, which Dominion says will produce stable long-term profits.
Dominion has also invested heavily in renewable natural gas. He expects his RNG portfolio to triple in the second half of the decade, a strategy that will reduce the company’s carbon footprint while diversifying its revenue streams.
Dominion Energy has spent the past 15 years shifting its portfolio from coal to natural gas. Over the next 15 years, it aims to shift a large part of its portfolio from natural gas to renewable energy. In addition to corporate goals, favorable federal and state policy could accelerate Dominion’s renewable investments. In its second quarter 2021 earnings call, management noted the passage of the Virginia Clean Economy Act as a milestone in the energy transition (Dominion home state and primary location is Virginia ). “We now have an obligation to seek approval for a substantial number of renewables over the next 1.5 years, solar, offshore wind, storage, all of that,” said Dominion Energy CEO Bob Blue. “And we’re going to have to modify the network to make sure we continue to operate in this environment.”
In short, Dominion Energy looks like a dividend-paying stock with stable earnings and exciting investments strong enough to withstand a stock market crash.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.