Brookfield Renewable vs. NextEra Energy: Which Clean Energy Stock Is a Better Buy?

Clean energy giants such as NextEra Energy and Brookfield Renewable are top long-term investment options in 2024.

| More on:
A solar cell panel generates power in a country mountain landscape.

Source: Getty Images

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.

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.  

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Fool contributor Aditya Raghunath has positions in Brookfield Renewable Partners. The Motley Fool recommends Alphabet, Amazon, Brookfield Renewable Partners, Meta Platforms, Microsoft, and NextEra Energy. The Motley Fool has a disclosure policy.

More on Energy Stocks

Silhouette of bull in front of setting sun
Energy Stocks

Here’s the Bull Case Behind Why Suncor Could Surge From Here

Let's dive into the bull case behind Suncor (TSX:SU), and where this Canadian energy giant could be headed into 2025.

Read more »

Oil industry worker works in oilfield
Energy Stocks

3 Energy Stocks to Buy Hand Over Fist in July 2024

Are you looking for a mix of income and capital growth in your portfolio? Here are three energy stocks that…

Read more »

pipe metal texture inside
Energy Stocks

Up by 1.6%: Is Enbridge (TSX:ENB) Stock a Buy in July 2024?

A small uptick is usually considered a fluke when it comes to most stocks, but for some slow-moving giants, it…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Energy Stocks

TFSA: 4 Canadian Stocks to Buy and Hold Forever

This well-priced basket of Canadian stocks is perfect for a long-term TFSA investor.

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

These Stocks Offering Over 6% Are My Top Picks for Immediate Income

TSX energy stocks such as Tourmaline Oil pay shareholders a tasty dividend in 2024. Is the dividend stock a good…

Read more »

Oil pumps against sunset
Energy Stocks

2 Incredibly Cheap Canadian Energy Stocks to Buy Now

These two incredibly cheap Canadian energy stocks are too attractively priced to ignore right now.

Read more »

Oil industry worker works in oilfield
Energy Stocks

2 Energy Stocks Set to Beat the TSX Index

Consider Cenovus Energy (TSX:CVE) and another top energy stock closely in the second half of 2024.

Read more »

golden sunset in crude oil refinery with pipeline system
Top TSX Stocks

3 Reasons to Buy Enbridge Stock Like There’s No Tomorrow

Are you ready to buy Enbridge stock? Here are three reasons why now, more than ever, this stock belongs in…

Read more »