The The world needs to invest trillions of dollars into it Building new capacities to generate renewable energy in the coming decades. The is expected to bring accelerated growth to companies focused on building and operating renewable energy plants.
But despite these growth prospects, many are Renewable energy stocks have lost significant value in recent years. The main culprit is rising interest rates, which have driven up their prices Capital costsmaking it more expensive for them to finance their growth.
These headwinds should ease as the Federal Reserve begins cutting interest rates, which could happen later this year. This upside catalyst and the sector’s strong growth prospects are critical to the situation NextEra Energy Partners (NYSE:NEP), Brookfield Renewables (NYSE:BEPC)(NYSE:BEP)And Clearway Energy (NYSE:CWEN)(NYSE:CWEN.A) to rise later this year and beyond.
Launch a strategy to reduce the impact of higher tax rates
Shares of NextEra Energy Partners have lost about two-thirds of their value since their peak in 2022. This selloff has pushed the company’s dividend yield into double digits. The main problem was the effects that rising interest rates had on the company’s ability to obtain capital at an attractive interest rate to refinance existing financing and finance new investments.
NextEra Energy Partners is working to offset these headwinds by selling its natural gas pipeline assets to pay off convertible note portfolio financing (CEPF) that it used for acquisitions. Additionally, the company has slowed its dividend growth prospects to a rate that it can support with internally funded organic growth (5% to 8% annually through 2026 with a target of 6% versus 12% to 15% annually).
The company has already made solid progress towards achieving its plan. The company sold one of its natural gas pipeline businesses late last year and will use the proceeds to fund CEPF acquisitions through June 2025. It also plans to sell its remaining gas pipeline businesses next year.
The company has now secured wind repowering projects with a capacity of over 1.1 gigawatts (GW) by 2026, which is close to its target of 1.3 GW. The implementation of his strategy, combined with the eventual decline in interest rates could give a big load To its share price.
Highly visible growth
Brookfield Renewable shares have lost nearly half of their value since peaking before the Federal Reserve began cutting interest rates. This has increased the dividend yield to up to nearly 6%.
Brookfield Renewable is in a much better position handle higher rates than NextEra Energy Partners due to its stronger balance sheet. This is why the company did not do this applied some changes its strategy or growth prospects. It assumes that funds from operations will grow (FFO) at a double-digit pace through 2028, which should result in annual dividend growth of 5% to 9%.
The company also has a lot of built-in growth. Organic factors such as inflation-related interest rate increases, margin improvement activities and development projects are expected to increase FFO by 7% to 12% per share by 2028, with acquisitions pushing it into double digits.
The company has already secured a strong growth rate for 2024 based on contracts completed and secured late last year. With increasing returns more than 10% annually and a dividend yield of over 6%, Brookfield could light Achieve an annual total return in the mid-teens.
Financing and growth secured
Clearway Energy shares have fallen more than 40% since their peak a few years ago. This sell-off has caused the dividend yield to rise by almost 7%.
As with Brookfield Renewable, higher interest rates will have no impact on Clearway’s ability to grow in the near term. The clean energy producer expects to increase its dividend through 2026 toward the upper end of its 5% to 8% annual target range.
The primary trigger was the liquidation of the company’s thermal assets in 2022. Clearway Energy used the proceeds from that sale to acquire income-producing renewable energy assets. It has committed funds or made offers to put all proceeds into deals to be completed by next year. This gives it the opportunity to increase cash available for distribution to a level that can support high-end dividend growth through 2026.
Meanwhile, recent contract extensions for its natural gas power plants provide a foundation for dividend growth in 2027. Adding the company’s growing revenue stream to its upside potential as interest rates decline, the company could deliver strong total returns over the next few years.
Increased total return potential
Rising interest rates have weighed on shares of NextEra Energy Partners, Brookfield Renewable and Clearway Energy, driving up their dividend yields, but tThese headwinds should ease later this year. That positions These renewable energy companies will generate high total returns in the coming years.
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Matt DiLallo holds positions at Brookfield Renewable, Brookfield Renewable Partners, Clearway Energy and NextEra Energy Partners. The Motley Fool has positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
These 3 High-Yield Dividend Stocks Set to Soar in 2024 and Beyond was originally published by The Motley Fool