The energy sector has been steadily shifting its fuel sources. It is moving away from greenhouse gas-emitting fossil fuels toward the cleaner options. This multidecade transition will need an enormous investment.

There are two companies that have emerged as the early leaders in the energy transition. That makes them excellent energy stocks to purchase and hold for the long term. Traders with $5,000 to put in the energy transition megatrend may want to spread that money around to two of the sector’s leading players: Brookfield Renewable and Clearway Energy.

Leading the renewable revolution

Brookfield Renewable is one of the biggest renewable energy producers in the world. It now owns a globally diversified portfolio of wind, hydroelectric, energy and solar transition assets. It sells this power as under fixed-rate power purchase agreements, which enable it to produce very stable cash flows.

Brookfield has a huge backlog of renewable energy development projects that will power its future growth in the sector. It has 62 gigawatts (GW) of projects that are currently under development, enough to power about 9 million homes for a whole year.

Along with increased power prices, this development pipeline will help push 6% to 11% yearly growth in funds from its operations. Also, Brookfield sees acquisitions that will add up to 9% to its bottom line every year. It sees a huge opportunity to acquire legacy energy businesses to accelerate their energy transition. Add in a 3.8%-yielding dividend that the company aims to grow by 5% to 9% each year, and it could deliver a powerful total return over the long haul.

A fully powered dividend growth engine

Clearway Energy is one of the biggest renewable energy producers within the U.S. Also, it owns a large portfolio of natural gas power plants that are environmentally sound. It sells the power that these facilities generate under long-term contracts to the electric utilities and other big power users. That enables it to produce a steady cash flow to help support its 4.4%-yielding dividend.

Clearway is expected to grow that payout by about 8% each year through 2026. Powering Clearway’s forecast is its large pipeline of investment opportunities. The company already has several new investments that are under contract. Meanwhile, it has a great relationship with a renewable energy project developer which gives it access to a lot of future opportunities. Clearway also has a lot of funding to complete its new investments after agreeing to sell its thermal company for $1.9 billion. These factors have provided it with plenty of power to see continued growth in the coming years.

A high-quality energy portfolio to hold through the transition

The multidecade transition to the cleaner energy sources will most likely have a lots of winners, so it makes sense invest in a basket of energy stocks that are positioned to prosper. The best two options are Brookfield Renewable and Clearway Energy. They are the top players in the sector, which should allow them to continue growing their operations, dividends and earnings. Those factors will make them seem like winning investments over the long run.

Author: Blake Ambrose

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