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3 Top Dividend Stocks to Buy in 2022

After rising steeply in 2020, renewable energy stocks slumped notably in 2021 -- leaving them far more attractively valued right for new investors. So if you have been looking to add renewable energy exposure to your portfolio, but felt the stocks were too pricey, now could be a good time to revisit the sector.

These three top renewable energy stocks look particularly attractive to me right now -- and they also pay appealing dividends.

Brookfield Renewable Partners

Brookfield Renewable Partners' (NYSE: BEP) unit price fell by 17% in 2021, whereas Brookfield Renewable Corporation's (NYSE: BEPC) stock fell by 37% last year. BEPC provides an economically equivalent way as BEP to invest in Brookfield Renewable's assets and was created to provide investors with greater flexibility in investing. Investors who avoid investing in partnerships for tax reasons or those who want to avoid the hassles of K-1 forms can invest through BEPC. Further, shareholders can exchange a BEPC share for a BEP unit should they want. Considering that BEP units and BEPC shares are both ways to invest in the same assets, they should trade at comparable yields. The steeper fall of the BEPC shares has largely corrected the arbitrary yield difference between stocks of the two entities.

At current prices, the distributions on the partnership's units and Brookfield Renewable Corporation's stock both now yield around 3.7%. That's around 100 basis points higher than Brookfield Renewable Partners' yield in January last year. Investors' exuberance for renewable energy stocks sent their prices higher in 2020 and in the beginning of 2021. Though renewable energy has a bright future, renewable energy stock prices got a little ahead of themselves. As a result, they witnessed some correction during the year.

Brookfield Renewable Partners' stock is trading at an enterprise value-to-EBITDA multiple of around 19, which is lower than its one-year average multiple of 21.6. On a total return basis, both Brookfield Renewable investments underperformed the broader market in the last year.

BEP data by YCharts

However, that largely reflects Brookfield Renewable's steep rise in the years before 2021. Over the past three years, its total returns well exceeded those of the S&P 500 index.

BEP Total Return Level data by YCharts

Brookfield Renewable's outperformance reflects the company's consistent growth over the years. Between 2010 to 2020, the company increased its funds from operations to $1.45 per share from $0.48 per share. In the third quarter, Brookfield Renewable's funds from operations increased to $210 million from $157 million in the prior-year quarter.

The company is investing consistently for growth. It owns a large portfolio of renewable energy assets. In the first nine months of 2021, hydro generation accounted for roughly 44% of the company's funds from operations (FFO) while wind generation accounted for 30% of its FFO. Overall, Brookfield Renewable Partners' stock would make a great addition to your dividend portfolio.

Image source: Getty Images.

Clearway Energy

Clearway Energy (NYSE: CWEN) is a renewable energy utility indirectly owned by the investment fund manager Global Infrastructure Partners. In addition to wind and solar generation projects, Clearway Energy also owns gas generation assets. In the first nine months of 2021, it generated 32% of its earnings before interest, tax, depreciation, and amortization (EBITDA) from conventional generation and 64% from renewable generation. After the sale of its thermal generation business in October, Clearway now focuses primarily on gas and renewable generation.

Over the years, it has generated consistent cash flows from its operations.

CWEN Revenue (TTM) data by YCharts

Nearly all of its generation capacity is backed by long-term contracts. As of September 2021, the average remaining duration of these contracts was around 13 years. Such long-term contracts keep Clearway Energy's cash flow stable.

At current share prices, Clearway Energy's dividend yields around 4%, which is nearly 110 basis points higher than its yield a year ago. The company is targeting annual dividend growth in the 5% to 8% range through 2026, and hopes to be able to deliver payout hikes toward the upper end of that target range. All in all, Clearway Energy stock looks appealing right now.

NextEra Energy Partners

Formed by NextEra Energy (NYSE: NEE), NextEra Energy Partners (NYSE: NEP) owns and operates wind, solar, and gas generation assets. Over the years, the company's financial metrics have been moving in the right direction.

NEP Revenue (TTM) data by YCharts

At current share prices, NextEra Energy Partners' dividend yield is an attractive 3.4%, which is around 70 basis points higher than its yield in January 2021. The company is targeting annual dividend growth in the 12% to 15% range through 2024. Further, in 2022, it expects to achieve distribution growth in that range with a trailing 12-month payout ratio below 85%.

For the first nine months of 2021, the company's payout ratio was roughly 75%. That indicates that NextEra Energy Partners has a healthy buffer to continue paying its distributions using cash generated from operations. At the same time, it shows the company's intention to distribute a sizable portion of its cash flow to its unitholders.

An unstoppable shift toward renewables, a solid historical pattern of distribution growth, and an attractive yield make NextEra Energy Partners' stock a fantastic choice to add to your dividend portfolio.

10 stocks we like better than Brookfield Renewable Partners L.P.
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*Stock Advisor returns as of January 10, 2022

Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc. The Motley Fool recommends NextEra Energy. The Motley Fool has a disclosure policy.


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