The renewable energy industry has I hit a bit of a speed bump during the last years. Rising interest rates have made it more expensive to finance projects, which has weighed on the sector. Higher rates have also lowered the value of income-producing assets, like renewable energy dividend stocksthus increasing their yields.
However, many expect interest rates to start falling in the coming years. This should increase the value of renewable energy stocks, which are benefiting from the strengthening of favorable winds for decarbonization. These catalysts should give major renewable energy producers NextEra Energy (NYSE: NO) And Clearway Energy (NYSE:CWEN)(NYSE:CWEN.A) the power to soar in 2024 and beyond.
The strong growth should continue
NextEra Energy’s stock price is currently about 20% below its 2022 high, what was just before interest rates start to rise. This fall in stock prices helped push the utility dividend yield up at almost 3%, more than double the S&P 500 dividend yield.
NextEra Energy shares fell even as the company continued to grow at an above-average rate. Its adjusted earnings per share rose 9.3% last year and 8.3% year over year in the first quarter. NextEra Energy’s rapid earnings growth has given it the power to increase its dividend by about 10% per year over the past two years.
NextEra expects continue to grow at a healthy pace over the next few years. It plans to grow adjusted earnings per share by 6% to 8% annually through 2026, with growth likely to be at or near the upper end of that range. Additionally, the company expects to generate dividend growth of around 10% per year until at least 2026. In the meantime, growth could be even stronger. in the futuregiven that demand for renewable energy is expected to grow at a compound annual rate of 13% through 2030. As the nation’s leading renewable energy developer, NextEra is expected to continue to capture a significant part of this growing demand.
With the wind of growth stronger than ever and interest rates poised to fall, NextEra Energy’s stock price could skyrocket over the next few years. Add to that its attractive and rapidly growing dividend, and the utility could produce powerful total returns.
A fully powered growth plan
Clearway Energy’s stock price has lost more than a third of its value since the 2022 peak. Rising rates are the main factor. They helped boost the clean energy infrastructure company’s dividend yield. close 6%.
Higher rates increased Clearway’s revenue cost of capitalmaking it more expensive to issue equity and debt to finance new investments. However, thanks to its capital recycling strategy, the company didn’t need to access external financing. Clearway leveraged the value of its thermal assets a few years ago and redeployed the profits into higher-yielding renewable energy investments.
This strategy supports Clearway’s view that it can continue to grow its high-yielding dividend toward the upper end of its annual target range of 5% to 8% until at least 2026. sale in transactions expected to close in the coming a pair of years.
At the same time, strong demand for electricity from its clean natural gas plants allow the company to obtain higher rates as old power purchase contracts expire. This leads the company to believe it could generate dividend growth of at least 5% in 2027 without making additional investments. However, with the expected drop in interest rates, Clearway’s stock price is expected to rise. This will reduce its cost of capital, thereby improving its ability to invest in new renewable energy assets.
Add the company’s high-yielding, ever-increasing dividend to its stock price upside potential, and Clearway Energy could produce supercharged returns in the years to come.
Powerful return potential
NextEra Energy and Clearway Energy continued to grow at solid rates despite unfavorable interest rates. This problem could soon become a tailwind, easing the burden of their actions. This catalyst, combined with continued strong growth in renewable energy, could give these stocks the power to soar in the years to come. This makes them excellent stocks buy for those looking for income and upside potential.
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Matt DiLallo holds positions in Clearway Energy and NextEra Energy. The Motley Fool ranks and recommends NextEra Energy. The Mad Motley has a disclosure policy.
These 2 Dividend Stocks Are Expected to Soar in 2024 and Beyond was originally published by The Motley Fool
