The worldwide shift towards clean energy solutions is inevitable as countries aim to fight climate change. Moreover, the artificial intelligence (AI) megatrend is likely to drive renewable energy demand higher in the next two decades as big tech giants such as Microsoft, Meta, Alphabet, Amazon, and many others look to power their data centres with clean energy sources.
These secular tailwinds make companies such as Brookfield Renewable (TSX:BEP.UN) and NextEra Energy (NYSE:NEE) enticing investment options right now. Let’s see which clean energy stock is a better buy in June 2024.
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The bull case for NextEra Energy stock
Valued at US$145 billion by market cap, NextEra Energy has already created massive wealth for shareholders, rising 265% in the past decade after adjusting for dividends. Despite its outsized gains, NEE stock trades 25% below all-time highs, allowing you to buy the dip and benefit from an attractive dividend yield of almost 3%.
NextEra is part of the recession-resistant utility sector allowing it to generate stable cash flows across business cycles. In fact, NextEra has paid shareholders a dividend every year for the last 30 years, which is among the longest streaks in the utility sector. In the last decade, its dividends have risen by 9%, and NextEra has outpaced the S&P 500 index by almost three times since 2004 if we adjust for dividend reinvestments.
NextEra is the largest clean energy company globally, and most of its cash flows are backed by long-term, rate-regulated contracts. It ended the first quarter (Q1) of 2024 with a backlog of 21.5 gigawatts, which is significant given that it currently operates 34 gigawatts of operating capacity. Additionally, NextEra has a development pipeline of 300 gigawatts, making it one of the best long-term investments right now.
The company’s organic expansion should allow it to grow earnings between 6% and 8% annually through 2027 and support dividend hikes of 10% in the next three years. Priced at 20.6 times forward earnings, NEE stock trades at a discount of 11% to consensus price target estimates.
The bull case for Brookfield Renewable stock
Similar to NextEra Energy, Brookfield Renewable has also delivered inflation-thumping gains to shareholders. Since June 2004, the TSX dividend stock has returned 1,450% to shareholders in cumulative gains. Despite its robust returns, BEP trades 45% below all-time highs and offers you a dividend yield of 5.6%.
In the last 13 years, the Canadian energy giant has raised its dividend payouts by at least 5%. Since 2001, its dividends have grown by 6% annually, while Brookfield’s funds from operations, or FFO, have risen by 12% each year since 2016.
Brookfield Renewable sells roughly 90% of the power it generates under long-term contracts to utilities and other corporate buyers. These contracts are also indexed to inflation, resulting in steady FFO growth for the company.
Over the years, Brookfield Renewable has sold off its legacy assets and reinvested these proceeds in higher-return projects while expanding into verticals such as offshore wind and energy storage.
The Foolish takeaway
Both Brookfield Renewable and NextEra Energy are positioned to deliver market-beating gains to long-term shareholders. Investors looking to gain exposure to clean energy can consider buying shares of the two energy giants and enjoy a stable passive-income stream in addition to capital gains.
