Traditional sources of energy, including fossil fuels, aren’t going anywhere anytime soon. However, the landscape is rapidly evolving, with renewables making significant progress in capturing market share and investor attention. In fact, as the global demand for energy continues to escalate rapidly, renewable sources are emerging. They are becoming formidable contenders to meet this ever-growing need sustainably.
During this transition, it’s beneficial for investors to not only consider the renewable energy sector giants but also search for hidden opportunities. Many companies tend to be overlooked. This suggests many opportunities could offer attractive total returns prospects moving forward.
As we continue further into June, it appears that the overall market has recorded strong gains. Yet, many renewable energy stocks have yet to join the party. So let’s explore three forgotten names that seem to form compelling investment cases at current price levels.
Atlantica Sustainable Infrastructure (AY)
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Atlantica Sustainable Infrastructure (NASDAQ:AY) is one of the better renewable energy stocks in which to invest for predictable returns. Its diversified portfolio of assets backed by multi-year Power Purchase Agreements (PPAs) sets the U.K.based company apart.
These contracts guarantee a specified price for the electricity generated by the company’s renewable energy projects, ensuring a steady stream of cash flow over multiple years. They have an average weighted life of 13 years, meaning that AY’s revenue profile is highly predictable. This enables investors to remain confident in Atlantica Sustainable Infrastructure even during wildly volatile periods that the industry tends to experience.
As a testament to this quality, the company is one of few renewable energy stocks that has already established a prolonged track record of dividend growth. Atlantica Sustainable Infrastructure has raised its dividend every year since 2014, when it first entered the public markets. Interestingly, due to the market selling off YieldCos, like Atlantica, in the current interest rate landscape, the company is not attached to a hefty dividend yield of 8.1%.
Brookfield Renewable Partners (BEP)
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Brookfield Renewable Partners (NYSE:BEP) is another winning option among renewable energy stocks. As part of the Brookfield Asset Management family, BEP benefits from the robust backing of one of the world’s leading alternative asset managers. This affiliation provides access to ample resources, marking a significant competitive advantage.
Over the years, the company has repeatedly proven its ability to capitalize on opportunities in the renewable energy space. It expands its global portfolio of hydroelectric, wind, solar and energy storage assets. Similar to Atlantica Sustainable Infrastructure, BEP’s strength lies in its assets. Those are backed by long-term contracts that span multiple years and sometimes decades. In turn, they provide a stable and predictable source of revenue for the company.
Therefore, BEP has also put out a robust dividend growth track record. Looking at BEP’s past payouts, you may notice what seems to be a distribution cut around 2020. However, this has to do with a special distribution of BEPC shares at the time. Excluding that, the company has consistently raised payouts over the past decade. Today, shares come with a 5.3% yield, while management still targets 5% to 9% annual growth in cash distribution.
Enphase Energy (ENPH)
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Enphase Energy (NASDAQ:ENPH) is a departure from the stability offered by the first two stocks. Unlike them, Enphase Energy operates in a notably more volatile sub-industry within the industry.
The company’s business model centers around the production of microinverters and energy management systems for solar installations. It exposes it to the fluctuating demands of the solar energy market. Moreover, Enphase Energy doesn’t pay dividends, diverging from the income-focused approach of the previous picks.
However, ENPH’s lack of stability and dividends is compensated by its strong growth prospects and high margins. The rising adoption of solar energy and Enphase Energy’s state-of-the-art technology position it for substantial expansion in the coming years. For context, the company went from generating $20.2 million in revenues in 2009 to $2.29 billion last year. Of this $2.29 billion, $586.4 million ended up as free cash flow, showcasing its high-margin business model.
On the date of publication, Nikolaos Sismanis did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
