Investing in clean energy companies can help you benefit from a rapidly expanding addressable market. Several countries are looking to invest heavily in renewable energy to fight climate change and reduce energy dependency on other nations.
In the last 18 months, clean energy stocks have trailed the broader markets by a wide margin. The clean energy sector is capital intensive, and these companies fund their expansion plans by increasing balance sheet debt, which was fine when interest rates were quite low in the past decade. But central banks have raised the cost of debt significantly to offset inflation and reduce the money supply in the economy.
As investors remain wary of rising interest rates and higher costs, let’s see which clean energy giant between Brookfield Renewable (TSX: BEP.UN) and NextEra Energy (NYSE: NEE) is a better buy right now.
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Is Brookfield Renewable stock a good buy right now?
Brookfield Renewable ended 2016 with 8,451 megawatts (MW) of hydroelectric capacity, 1,590 megawatts of wind capacity, and zero capacity in its solar business. In the last six-and-a-half years, it has reduced its hydroelectric capacity to 8,175 MW while the combined capacity for wind and solar has increased to 13,680 MW, allowing the company to more than double its total capacity in this period.
Due to its diversified cash flows, which are tied to long-term power-purchase agreements and a widening base of cash-generating assets, Brookfield aims to deliver shareholders annual returns of between 12% and 15%. It expects to grow annual distribution by 5% and 9%, making BEP stock very attractive to income-seeking investors.
Down 54% from all-time highs, Brookfield Renewable stock offers shareholders a tasty dividend yield of 6.4%. BEP stock has returned 256% to shareholders in the last 10 years after adjusting for dividends, indicating annual returns of 13.5%. The TSX stock currently trades at a discount of 63% to consensus price target estimates.
What is the price target for NextEra Energy stock?
The largest clean energy company in the world, NextEra is valued at US$110 billion by market cap. NEE stock is trading 41% below all-time highs, raising its dividend yield to 3.4%.
A growing producer of renewable energy, NextEra sells and transfers its capacity to utility companies. The demand for electricity generally remains steady across market cycles, providing NextEra with a stable stream of cash flows.
Its recession-resistant business has allowed NEE to increase dividends every year for the last 28 years. Since 1995, NextEra has raised these payouts by more than 8% annually, showcasing the resiliency of its cash flows.
Priced at 16 times 2024 earnings, NEE stock trades at a reasonable valuation, given its earnings are forecast to grow by 8.8% annually in the next five years. Analysts remain bullish and expect NextEra energy to surge by almost 60% in the next 12 months.
The Foolish takeaway
Both Brookfield and NextEra are top investment options for long-term investors. But if I have to choose a winner, Brookfield’s higher dividend yield and robust growth estimates make it a better stock at current prices.
