There’s a lot of uncertainty these days regarding tariffs and their impact on the economy. However, one of the few certainties is that electricity demand will continue growing. Demand catalysts, such as data centers, the onshoring of manufacturing, and the electrification of transportation, could meaningfully increase power demand in the future.
While that electricity will come from many sources, renewable energy will be the biggest beneficiary of the demand surge. Because of this, leading renewable energy dividend stocks Brookfield Renewable (BEPC 0.86%) (BEP 1.03%) and Clearway Energy (CWEN 0.94%) (CWEN.A 1.06%) look like no-brainer investments for those with $1,000 to invest right now.
A big yield and powerful growth rate
Brookfield Renewable is a leading global renewable energy and sustainable solutions company. It operates a diversified portfolio of renewable energy assets, including hydro, onshore and offshore wind, utility-scale solar, distributed generation, and energy storage. The company sells the power generated by these assets under long-term, fixed-rate power purchase agreements (PPAs) to utilities and large corporate electricity buyers. Those PPAs provide it with very stable and growing cash flow (70% link rates to inflation).
Brookfield uses much of that steady cash flow to pay dividends. Its payout currently yields 5.4%. At that rate, a $1,000 investment would generate about $54 in annual dividend income.
The company expects to grow its already high-yielding payout by 5% to 9% per year. It has increased its payment by at least 5% per year since 2001. Given the growth it sees ahead, it should have no trouble continuing to boost its payment.
The company expects its existing portfolio to deliver 4% to 7% annual growth in funds from operations (FFO) per share, driven by inflation escalations and margin enhancement activities. Meanwhile, the company has a vast pipeline of renewable energy projects under construction and in development, which should add another 4% to 6% to its annual growth rate. Add in accretive mergers and acquisitions (M&A), which it expects to fund through its capital recycling initiatives, and Brookfield sees its FFO per share growing at a rate of more than 10% annually for the next decade.
Growing visibility into extending its dividend growth plan
Clearway Energy owns one of the largest clean energy power-generation portfolios in the country. It has solar, wind, energy storage, and natural gas power assets. It also sells the power it produces under long-term, fixed-rate PPAs. Those agreements provide it with steady cash flow, which it uses to pay an attractive dividend (a current yield of 6.1%).
The company has increasing visibility into its ability to continue growing its high-yielding dividend. Clearway cashed in on the value of its thermal assets a few years ago and has been recycling that capital into higher-returning renewable energy investments. It currently has deals lined up to put all those proceeds to work. They position the company to achieve its target of increasing its dividend by another 2% this year from its current level and delivering 6.5% dividend growth next year.
Meanwhile, Clearway’s growth visibility in 2027 and beyond is on the rise, driving its view that it can continue to deliver dividend growth within its long-term target range of 5% to 8% annually. The company has signed several new gas PPAs at higher rates as legacy agreements expired.
In addition, it’s lining up new investment opportunities. A key part of its strategy is acquiring recently developed renewable energy assets, enabling developers to recycle capital into new projects. Given the growth ahead for renewable energy demand, Clearway should have no shortage of future investment opportunities.
Safe bets to produce sustainable and growing dividends
The demand for power, especially from renewable sources, should continue rising in the coming years. Because of that, leading renewable energy producers like Brookfield Renewable and Clearway Energy should generate lots of cash to pay their high-yielding dividends while expanding their businesses. This should give them the power to keep growing their payouts and makes them seem like no-brainer buys for those seeking lucrative income streams that steadily rise.
Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Clearway Energy. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.