The global economy is undergoing a significant shift in fuel sources, leading to a transition in the energy industry. While it continues to supply the world with fossil fuels, it is also investing in lower-carbon energy for the future. In light of this direction, the best energy stocks to consider for long-term investments are those focused on a lower-carbon future. Three companies that stand out in this regard are Brookfield Renewable, Enbridge, and Southern Company.
Brookfield Renewable is fully committed to clean energy. It operates one of the world’s largest renewable energy platforms and has a growing sustainable solutions platform. Its current operating portfolio includes hydroelectric, wind, solar, and storage assets with the capacity to generate 31 gigawatts (GW) of clean power annually, equivalent to offsetting all carbon emissions in France. However, the company’s power-producing potential is far from being fully realized. It has 143 GW of renewable power projects in various stages of development, along with investments in carbon capture and storage, renewable natural gas production, materials recycling, solar panel manufacturing, and green ammonia. These investments are expected to drive significant earnings growth in the coming years, with Brookfield Renewable aiming to increase its cash flow per share by over 10% annually through 2028. Additionally, the company plans to increase its 4.8%-yielding dividend by 5% to 9% per year, potentially leading to double-digit total annual returns.
Enbridge, an oil pipeline giant, has steadily been shifting towards lower-carbon energy sources. It expects natural gas transmission, gas distribution, and renewable power to contribute half of its earnings this year, up from 43% last year. This transition is fueled by the pending acquisition of three natural gas utilities from Dominion and investments in expanding its gas transmission and renewables earnings. Enbridge currently has CA$24 billion ($17.8 billion) worth of expansion projects in its backlog, with only a small portion dedicated to its liquids pipeline segment. The majority of these projects are focused on lower-carbon energy, including new natural gas pipelines, a liquified natural gas facility, expanding natural gas utilities, RNG projects, and offshore wind farms in Europe. The company also has several other lower-carbon projects under development, such as potential expansions into the carbon capture and storage and blue ammonia sectors. Enbridge expects its lower-carbon investment strategy to drive around 5% annual earnings per share growth in the medium term, supporting its 7.5% dividend yield and offering the potential for double-digit total annual returns.
Southern Company, a leading utility, operates electric companies in three states and natural gas distribution companies in four states. It also has a growing commercial power business that generates renewable electricity sold to third parties. The majority of Southern Company’s power is currently derived from lower-carbon sources, with natural gas accounting for 52% of its power mix, followed by nuclear (16%), renewables (15%), and coal (17%) in the third quarter. The company continues to reduce its reliance on coal by increasing generation capacity from lower-carbon energy sources. It is in the final stages of a major expansion of its nuclear power capacity, which involved investing over $10 billion to build two new nuclear-power-generating units. The first unit has already begun operating, and the second unit is expected to be online in early 2024. These investments will increase Southern Company’s operating cash flow by $700 million annually. With more cash flow, the company can increase its 4.1% dividend yield and invest further in its transition to lower-carbon energy. This combination of dividend and earnings growth could result in attractive total annual returns over the long term.
In conclusion, Brookfield Renewable, Enbridge, and Southern Company are all heavily investing in lower-carbon energy, which is expected to drive their cash flows and enable them to increase their dividends. These factors make them attractive options for long-term investments. By allocating $1,000 to these energy stocks, investors have the potential to benefit from strong total annual returns as the companies navigate the transition to a lower-carbon future.
