The Motley Fool

3 Renewable Energy Stocks for July

Image source: Getty Images

Renewable energy is taking the world by storm.

According to the International Renewable Energy Agency, renewables now account for one-third of global power capacity. Last year, renewable generation grew by nearly 8%, fueled by new solar and wind projects.

Most importantly, the rise of renewables is no longer being driven by subsidies, but rather economics. Renewable energy will only grow more price competitive, creating a multi-decade investing opportunity for long-term investors.

What’s the best way to take advantage of this mega-trend?

There are several ways to profit. We rounded up your best options based on risk mitigation and upside potential.

Take full advantage

Renewable energy is all about deal sourcing. If you don’t acquire enough attractive assets, you won’t be able to generate massive shareholder wealth.

While it’s only worth $8 billion, Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP) has the firepower of a $100 billion conglomerate. That’s because it belongs to the powerful Brookfield family of enterprises.

Brookfield Renewable is overseen by $60 billion alternative asset manager Brookfield Asset Management. This asset manager has an impressive portfolio that includes Brookfield Infrastructure Partners, Brookfield Property Partners, and Brookfield Office Properties.

While each company has a distinct operating model, there are often huge overlaps in strategy. For example, Brookfield Infrastructure often acquires large power plants, some of which may specialize in renewable energy.

Because each entity is managed by the same parent company, they can share resources, leads, and expertise. That’s given Brookfield Renewable plenty of opportunities to grow.

Since 2006, shares are up nearly 140% while delivering an annual dividend of 5-6%. Over the same period, the S&P/TSX Composite Index is up less than 40%.

Due to its unique business model, Brookfield Renewable should continue growing for as long as the grid converts to cleaner forms of energy. That trend should last decades.

5 TSX Stocks Under $5

Click here to learn more!

Go niche

Formed by TransAlta to capitalize on opportunities specifically within renewable energy, TransAlta Renewables (TSX:RNW) has the funds and expertise necessary to establish a large fleet of clean power generation assets. In fact, TransAlta still owns 61% of the company.

Since its debut in 2013, the company has outperformed the market while paying a dividend that is currently approaching 7%. TransAlta Renewables now has 42 generation projects spanning the U.S., Canada, and Australia.

The secret, however, is its diversification.

Unlike many pure-play clean energy companies, TransAlta Renewables gets a lot of its cash flow from natural gas facilities. Roughly half of its cash flows come from solar, wind, and hydro. The other half is from natural gas.

Because natural gas complements the intermittent production profiles of renewables, this is a valuable asset mix to own, even if it doesn’t qualify with stricter definitions of clean energy. Investors may write the company off for that very reason, but in reality, TransAlta Renewables controls one of the most attractive project portfolios in the industry.

Stick with stability

If you want stable, reliable returns, Hydro One (TSX:H) is a great bet.

This is a simple story. The company is nearly entirely regulated, meaning its revenues and profits are almost guaranteed. Long-term contracts stretching a decade or more ensure cash flow generation regardless of market or economic conditions.

The dividend is just 4.2%, but that’s the price you pay for a business that has the potential to grow during a global economic downturn.

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of Brookfield Asset Management and BROOKFIELD ASSET MANAGEMENT INC. CL.A LV. Fool contributor Ryan Vanzo has no position in any stocks mentioned. Brookfield Infrastructure Partners and Brookfield Property Partners are recommendations of Stock Advisor Canada. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.