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3 Top Renewable Energy Dividend Stocks to Buy Now

Posted On September 6, 2018 1:21 pm
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Two independent renewable energy companies and the subsidiary of a major U.S. power utility are set to reward dividend investors for potentially decades to come.

Renewable energy has become a real player on a global basis. According to the International Energy Agency, 41% of global energy spending was in renewables in 2017, and it projects that percentage to grow to 60% by 2030.

It might be surprising to learn that there are a handful of solid dividend stocks in the renewables space: A segment more readily known for high-growth (or just high-risk) solar stocks is also where you can find some of the best dividend stocks out there. Three that look particularly compelling today are Pattern Energy Group (NASDAQ:PEGI)TerraForm Power (NASDAQ:TERP), and NextEra Energy Partners (NYSE:NEP).

Let’s take a closer look at each of these three companies. They all pay above-average dividends and offer solid prospects to raise their payouts, but there are a handful of things investors should consider before buying.

A turnaround that’s paying off

One thing alone should be enough to put TerraForm Power on dividend investors’ watchlist: It’s now under the control of asset-manager extraordinaire Brookfield Asset Management.

In 2017, Brookfield acquired a controlling position (including the general partner stake) in TerraForm from bankrupt SunEdison. Since then, it has replaced the management team, improved operations, and implemented a plan to drive its returns and cash flows higher.

And it’s already paying off. Last quarter, TerraForm reported 9.4% increase in EBITDA — earnings before interest, taxes, depreciation, and amortization — and a 5.6% increase in cash available for distribution.

Seeing improvements in cash flows this quickly is a real positive, and offers solid evidence that the $0.19-per-share quarterly dividend instituted early this year is not only secure, but that management’s goal to raise the payout 5% to 8% per year is likely realistic.

Even with the payout well within its ability to support, and a clear path to growth, it yields 6.9% at recent prices. Despite its history as a poor investment under SunEdison, today’s TerraForm Power is worth buying and holding for many years to come.

Betting against the bears

Pattern Energy, which yields 8.4% at recent prices, is decidedly high-yield, and there are plenty of investors who think the payout will get cut before it goes higher. But I think Mister Market’s expectation that it will have to cut the payout may be overdone…

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