Several global economies are rapidly shifting towards clean energy solutions in a bid to fight climate change. The move away from fossil fuels is inevitable, making companies part of the renewable energy space an enticing bet for long-term investors. In fact, the clean energy sector might attract US$150 trillion in total investments in the next 30 years.
In the last 10 years, this industry has increased power-generation capacity by 300%, accounting for one-fifth of the total energy generated. Governments are also incentivizing the transition and providing subsidies to accelerate the adoption of clean energy solutions.
Given multiple secular tailwinds, you can consider buying shares of companies part of the renewable energy sector. I have identified two such industry-leading renewable energy stocks that you can buy in 2023.
NextEra Energy stock
NextEra Energy (NYSE: NEE) operates one of the largest regulated electric utility operations in the U.S., and the company is the largest wind and solar energy producer in the country. These two businesses have allowed NextEra Energy to increase adjusted earnings by 10% since 2012.
Its expanding profit margins also allowed NextEra to increase dividends by 10% in the past decade. It currently pays shareholders annual dividends of US$1.87 per share, translating to a forward yield of 2.5%.
NextEra is one of the fastest-growing utilities in the world, which also means the stock is priced at 25 times forward earnings. Analysts expect adjusted earnings to increase by at least 10% in the next five years.
NextEra Energy has allocated between US$32 billion and US$34 billion in capital expenditures through 2025 to expand its base of cash-generating utility assets. It also has order backlogs to increase clean energy capacity by 19 gigawatts, allowing it to end 2026 with a total capacity of 42 gigawatts. These investments should allow the clean energy giant to support further dividend hikes in 2023 and beyond.
Down 19% from all-time highs, NextEra is currently valued at US$150 billion by market cap. Despite the recent pullback, NEE stock has returned 427% to investors after adjusting for dividends since March 2013. In this period, the S&P 500 and the TSX have returned 200% and 112%, respectively.
Analysts remain bullish on NextEra Energy and expect shares to gain another 25% in the next 12 months.
Brookfield Renewable Partners stock
Another dividend-paying renewable energy heavyweight is Brookfield Renewable Partners (TSX: BEP.UN) A pure-play renewable power company, Brookfield has a portfolio of hydro, wind, and storage facilities in the Americas, Asia, and Europe. These assets allow it to report cash flows across market cycles and offer investors a forward dividend yield of 4.6%.
Brookfield Renewable continues to deploy capital to gain traction in existing markets and to expand renewable operations. It currently has 19,000 megawatts of capacity under construction and a development pipeline of 110,000 megawatts.
In 2022, Brookfield Renewable increased funds from operations by 8% year over year to US$1 billion, or US$1.56 per unit. Its cash flows are inflation-linked and contracted, enabling the company to reinvest in growth, pursue accretive acquisitions, and strengthen its balance sheet.
BEP.UN stock is currently trading at a discount of 20% to consensus price target estimates.
