Find renewable income with these alternative energy dividend stocks

As much of the world is undergoing a long transition from fossil fuels to renewable energy sources to help slow climate change, many renewable energy reserves have the potential to grow. promising growth ahead.

Consider the outlook for three dividend stocks in this category, Brookfield Renewable Partners (BEEP), Clearway Energy (CWEN) and Aris Water Solutions (ARIS) .

Brookfield Renewal Partner

Brookfield Renewable Partners operates one of the world’s largest publicly traded renewable energy asset portfolios. Its portfolio includes approximately 23,000 megawatts of capacity in North America, South America, Europe and Asia.

Brookfield Renewable Partners is a good candidate for investors who want exposure to the long-term development of clean energy sources. The company has a strong growth strategy and significant competitive advantages, namely its global operating presence, long-term track record and success in operating clean energy assets and fleets. capable management team.

It is also important to note that hydroelectric power generates about 70% of the total money from the company’s operations. Brookfield Renewable Partners owns one of the largest hydropower businesses in the world, which has doubled in size over the past five years. Hydropower assets benefit from a long useful life (often over 100 years) and extremely low capital and operating costs.

Brookfield Renewable Partners has a project network of approximately 62,000 megawatts. As this capacity is almost triple the company’s current installed capacity, it is clear that the renewable energy giant has interesting growth potential ahead.

Until a few years ago, renewable energy could not compete with energy generated by fossil fuels because the cost of production was much higher than in the past. However, this has changed in recent years thanks to major technological advances that have resulted in significant reductions in the cost of solar and wind energy.

Even better for Brookfield Renewable Partners, the transition from fossil fuels to clean energy sources accelerated this year as the West responded to Russia’s invasion of Ukraine. Russia supplies about a third of the natural gas consumed in Europe and 10% of global oil production. Due to European and US sanctions against Russia, the global oil and gas market has tightened to an extreme this year and as a result oil and gas prices have surged to multi-year highs. Therefore, most countries are trying their best to switch from fossil fuels to renewable energy sources in order to reduce the budget deficit. A record number of renewable energy projects are under development right now, mainly due to the Ukraine crisis.

The only caveat is Brookfield Renewable Partners’ somewhat leveraged balance sheet, which is the result of the company’s aggressive growth strategy. Interest expenses now account for 74% of operating income while net debt stands at $33.7 billion, nearly 2.5 times the stock’s market capitalization. However, the company has no physical debt maturity until 2027 and has promising growth potential. As a result, it was able to pay its debt without problems. This helps explain its investment grade credit rating of BBB+.

Brookfield Renewable Partners currently pays a dividend yield of 4.3%, with a payout ratio of 78%. The payout ratio is up, but the MLP is likely to protect its dividend for the foreseeable future thanks to its reliable growth trajectory.

clear energy

Clearway Energy is a large utility that owns and operates contract energy generation operations across three segments: conventional, renewable, and thermal power. The company owns assets generating more than 8,000 megawatts. Clearway is a large renewable energy company, with more than 5,500 MW of installed wind and solar capacity. About 2,500 megawatts of the company’s net energy comes from natural gas production facilities.

Thanks to its essential nature, Clearway has proven resilient throughout the coronavirus crisis, as people do not reduce their electricity consumption even during the most adverse economic times. In 2020, while many companies are under great pressure, Clearway only announced a 3% decrease in cash flow per share and a dividend increase of 31%. The utility is likely to prove defensive once again if the sharp rate hikes carried out by the Fed cause a recession.

Clearway has grown earnings per share by an average of 5.0% annually over the past six years. This is in line with the mid-range growth rates that are typical in the utilities sector. However, the company has a slightly more volatile operating record than a typical utility.

Clearway has plenty of room for future growth, as it has a growing system of over 26 MW. Thanks to the tentative approval of rate hikes by regulators and the acquisition of existing renewable energy projects, the company is likely to continue to grow its cash flow per share at a healthy rate. single-digit average over the coming years.

Clearway currently offers a 4.2% dividend yield, with a payout ratio of 49%. Interest expenses currently account for 81% of operating income but management has stated that it intends to reduce debt on the balance sheet and thus reduce interest expenses. Given the fairly reliable cash flow the utility enjoys given the essential nature of its business, Clearway’s dividend looks safe for the foreseeable future.

Aris . Water Solution

Aris Water Solutions is an environmental infrastructure and services company that provides water treatment and recycling solutions. Its manufacturing water treatment business gathers, transports, and treats manufacturing water generated from oil and natural gas production. Aris Water Solutions was founded in 2015 and therefore it has a short history.

Aris Water Solutions benefits from a strong long-term trend, namely an increasing effort by most companies to improve the sustainability of their business and thereby raise their ESG scores. . The company’s infrastructure serves the major oil and gas producers in the Permian Basin, helping them achieve their sustainability goals.

The strong secular wind is clearly reflected in the amount of water handled by the company. In the most recent quarter, Aris Water Solutions increased its total water volume by 47% quarter-on-quarter while the amount of recycled water more than doubled. As a result, the company increased sales by 53% and adjusted earnings before interest, taxes, depreciation and amortization by 28%. It also announced strategic agreements with Chevron (CVX) and ConocoPhillips (cop) . Notably, Aris Water Solutions increased water production for six consecutive quarters and did not decrease EBITDA during this period.

Furthermore, Aris Water Solutions has a much stronger balance sheet than Brookfield Renewable Partners and Clearway. Interest expense accounts for only 44% of operating income while the leverage ratio (net debt to EBITDA) is only 2.4. Since there is no significant debt maturity until 2026, the company can easily maintain a dividend of 1.9%. Overall, Aris Water Solutions has a much stronger balance sheet than Brookfield Renewable Partners and Clearway, but it offers a much lower dividend yield than the other two and has a short history, which makes which increases the inherent risk of the stock.

Due to their aggressive growth strategies, Brookfield Renewable Partners and Clearway carry a substantial amount of debt, and as a result, interest expenses affect their earnings. However, given the growth potential and essential nature of their business, these companies do not appear to have any problems paying their debts.