The global economy has slowly shifted to cleaner fuel sources over the years. This transition is likely to take several decades to complete. However, what has become clear is that the world is moving towards a future powered by renewable energy.
Many companies are taking the first steps to participate in the energy transition. Three energy companies positioning themselves to win are Royal Dutch Shell (NYSE: RDS.A)(NYSE: RDS.B), Xcel Energy (NASDAQ: XEL), and NextEra Energy (NYSE: SEN). This is where investors will not want to lose this trio.
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The real treatment
Reuben Gregg Brewer (Royal Dutch Shell): Royal Dutch Shell cut its dividends in 2020 due to low energy prices. This is not good. But it would be a mistake to disregard this nearly 200-year-old energy giant, given his long history of adjusting his business to the world around him.
Today, this means retreating into the heavy carbon oil space, investing more heavily in transition businesses (such as liquefied natural gas, which is often combined with renewable energy to ensure energy reliability) and increasingly focusing on the future of energy. energy (such as renewable power, which the company calls “growth” business). The dividend cut, while unfortunate, helps free up money to finance the transition of its business, with Shell planning to invest up to $ 20 billion a year to meet changing world energy needs. The key, however, is that from now on, only 35% to 40% of the capital expenditure budget will go to oil. The rest is split between your transition and growth businesses. This is a very aggressive plan that will work particularly well if the world makes a decided move towards renewable energy.
To be fair, conservative dividend investors may prefer a more intermediate approach, such as Total is taking. But if you believe that the transition to renewable energy will happen quickly, Shell appears to be in a better position to transition to the future of clean energy, while milking its dairy cow business for as long as it can.
Investing in the future of energy
Matt DiLallo (Xcel Energy): Utility Xcel Energy has a bold goal. Its goal is to provide 100% carbon-free electricity by 2050. The supply of this plan is a stable transition to cleaner energy sources. The company plans to withdraw all of its coal-fired power plans by 2030 and replace that capacity with cleaner natural gas and renewable energy. Meanwhile, it is investing in emerging technologies like green hydrogen to fulfill its ambitious multi-decade plan for producing emission-free energy.
In the short term, Xcel Energy expects to invest up to $ 24 billion by 2025 in expansion projects, such as new renewable energy capacity. This represents an increase of US $ 1.4 billion compared to the initial plan, driven by incremental investments in new developments in solar energy and wind repowering projects. In addition to this visible short-term growth, the company sees significant opportunities for future expansion in solar energy due to the constant drop in costs and the intriguing potential of using nuclear energy to produce emissions-free hydrogen that could eventually become a substitute for gas Natural.
The company predicts that its investments over the next four years will boost earnings per share growth of around 5% to 7% per year. This should give you the fuel to increase your dividend by 2.7% at about the same annual rate. Xcel’s continuously rising profits and dividends are expected to produce attractive total returns for investors, especially considering the company’s low risk profile. This combination of low risk and attractive reward potential makes Xcel a great way for investors to gain some green as the world turns green.
A win-win action for all investors
Neha Chamaria (NextEra Energy): If you are looking to invest in renewable energy, look no further than NextEra Energy. After all, it is the world’s largest producer of solar and wind energy. But here’s the real deal: the company, which also owns the largest regulated utility in the United States, Florida Power & Light Company, is doing everything to ensure it stays on top for years to come, which is exactly why investors they could mint a lot of money with that stock.
NextEra had a solid year in 2020, beating the pandemic blues of COVID-19 and delivering results where it matters. As the company’s profits grew, so did its projections until 2023. NextEra expects its adjusted earnings per share to grow by 6% to 8% in 2022 and 2023 outside its projected base for 2021, supported by an energy portfolio ever increasing.
During the first nine months of 2020, NextEra added almost 4,800 megawatts to its renewables portfolio. As a result, its total order book exceeded 15,000 megawatts until the third quarter, exceeding all of the company’s existing renewable capacity. In other words, NextEra’s ability to produce wind and solar energy is expected to grow exponentially in the near future. With the company also venturing into battery storage and high-potential green hydrogen, the opportunities are endless.
So you have a public service established here that is taking the renewable world by storm, making NextEra Energy a staple product to play the renewable energy boom. In fact, growth and income investors should be largely rewarded, as NextEra is also an excellent company that pays dividends. Although 1.7% share yield is on the downside in the utilities sector, management is aiming for 10% annual dividend growth until “at least” 2022. With NextEra’s 2020 full-year earnings coming and your next expected dividend increase in the coming weeks, you will not want to miss this train.