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The global economy has slowly turned to cleaner fuel sources over the years. This transition will probably take several more decades. However, what has become clear is that the world is heading towards a future powered by renewable energy.
Many companies are taking the first steps to participate in the energy transition. Three energy companies positioning themselves to win are Royal Dutch Shell (NYSE: RDS.A)(NYSE: RDS.B), Xcel Energy (NASDAQ: XEL), and NextEra Energy (NYSE: NEE). Here’s why investors won’t want to miss this trio.
Image source: Getty Images.
The royal treatment
Reuben Gregg Brewer (Royal Dutch Shell): Royal Dutch Shell reduced its dividend in 2020 in the face of weak energy prices. It’s not good. But it would be a mistake to count this nearly 200-year-old energy giant, given its long history of adjusting its business to the world around it.
Today, that means retreating into the carbon-heavy oil space, investing more in transition businesses (such as liquefied natural gas, which is often associated with renewable energy to ensure energy reliability), and focus more and more on the future of energy (such as renewables). power, which the company calls a “growth” company). The reduction in the dividend, while unfortunate, is helping free up cash to fund the transition of its business, with Shell planning to invest up to $ 20 billion per year to meet the world’s changing energy needs. The key, however, is that in the future only 35% to 40% of the capital expenditure budget will be spent on oil. The rest is shared between its transition and growth activities. This is a fairly aggressive plan that will work particularly well if the world opts for a decisive transition to renewables.
To be fair, cautious dividend investors might prefer a more intermediate approach, like the one Total take. But if you think the transition to renewable energy will happen quickly, Shell seems to be in a better position to move on to a clean energy future while still tracking its cash cow oil business for as long as it can handle.
Investing in the future of energy
Matt DiLallo (Xcel Energy): Utility Xcel Energy has a bold goal. Its goal is to provide 100% carbon-free electricity by 2050. Fueling this plan is a steady transition to cleaner energy sources. The company intends to withdraw all of its coal-fired electricity plans by 2030 and replace that capacity with cleaner natural gas and renewables. Meanwhile, he is investing in emerging technologies like green hydrogen to achieve its ambitious multi-year energy production plan without emissions.
In the short term, Xcel Energy plans to invest up to $ 24 billion through 2025 in expansion projects, such as new renewable energy capacity. That’s an increase of $ 1.4 billion from its original plan, fueled by additional investments in new solar power developments and wind repowering projects. In addition to this visible short-term growth, the company sees significant opportunities for future expansion in solar due to steadily falling costs and the fascinating potential of using nuclear power to produce hydrogen. without emissions that could eventually replace natural gas.
The company expects its investments over the next four years to grow earnings per share of around 5% to 7% per year. This should give him the fuel to increase his dividend by 2.7% at about the same annual rate. Xcel’s steadily growing earnings and dividends are expected to produce attractive total returns for investors, especially given the company’s low risk profile. This combination of low risk and attractive reward potential makes Xcel a great way for investors to go green as the world goes green.
A win-win stock for all investors
Neha Chamaria (NextEra Energy): If you want to invest in renewable energy, look no further than NextEra Energy. It is, after all, the world’s largest producer of solar and wind power. But here’s the real deal: The company, which also owns America’s largest regulated utility, Florida Power & Light Company, is doing everything it can to ensure it stays on top for years to come, and this is precisely why investors could get a lot of money from this stock.
NextEra has had a solid year in 2020, beating the blues of the COVID-19 pandemic and delivering where it counts. As the company’s profits have grown, its projections to 2023 have increased. NextEra predicts that its adjusted earnings per share will increase 6% to 8% in 2022 and 2023 from its projected 2021 base, supported by a steadily growing renewable energy portfolio.
In the first nine months of 2020, NextEra added nearly 4,800 megawatts to its renewable energy backlog. With that, its total backlog jumped 15,000 megawatts in the third quarter, exceeding the entire existing renewable energy capacity of the company. In other words, NextEra’s ability to generate wind and solar power is expected to grow exponentially in the near future. The company is also dedicated to battery storage and high potential green hydrogen, the opportunities are numerous.
So you have a utility established here that is taking the renewable energy world by storm, making NextEra Energy an obvious stock to play the renewable energy boom. In fact, growth and income investors should be well rewarded with NextEra being a great dividend paying company as well. Although the stock yield of 1.7% is lower in the utilities sector, management is targeting annual dividend growth of 10% through 2022 “at least”. With NextEra’s 2020 full year earnings fast approaching and its next dividend hike expected in the coming weeks, you won’t want to miss this train.
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