As of 2020, fossil fuels still maintain their status as the dominant source for global energy. However, despite this tendency, solar energy has grown considerably during the last decade.
Fortunately for environmentally conscious investors, there are some opportunities to invest in this sector and benefit from its expansion in the process. Here are the top 3 stocks picks for those market participants, who want to invest in solar energy in 2020:
- NextEra Energy Partners (NEP)
- SunPower Corporation (SPWR)
- Hannon Armstrong (HASI)
Let us now go through each of those companies in more detail.
NextEra Energy Partners (NEP)
NextEra Energy Incorporated is one of the largest electric power companies in North America in the renewable energy sector. According to the 2019 annual report, the company is made up of two principal businesses, known as FPL and NEER. The former one represents the largest electricity company in Florida and one of the largest utility companies in the United States. The business delivers clean energy solutions, benefiting more than 5 million customers.
The other essential component of the company, NEER is the world’s largest generator of clean energy not only from the sun but from the wind as well. Besides the United States, the business also operates in Canada.
The firm as a whole made a significant move towards expansion, by acquiring Gulf Power in January 2019, an electric utility company, which was engaged in the distribution and sale of electricity in the state of Florida.
As the official annual report of the company suggests, NextEra Energy Partners employs more than 14,800 people. The report further states that the average monthly energy bill in the United States for 1,000 kWh stands at $141.56. In comparison, the average monthly bill for NextEra Energy Partners for the same amount of electricity consumption amounted to $100.45. This means that this company helps its customers save approximately 29% of electricity costs. In 12 months this difference can give individuals an opportunity to save up to $500 in utility expenses.
In total, the company has solar facilities in 26 US states. As the official reports suggest, those facilities have a total generating capacity of 2,684 MW by the end of 2019. Here it has to be mentioned that the firm’s activities are not strictly limited to solar power. In fact, the company owns wind facilities in 19 US states and 4 Canadian provinces. As the annual report notes, those facilities have a total generating capacity of 15,955 MW.
As we can see from the chart above the stock of the company has appreciated steadily from December 2016 until February 2020. During this period the shares have risen from $24 to $61, gaining 154% in the process, which is quite an impressive return for 3 years.
The stock eventually fell victim to the March 2020 stock market crash, when it briefly fell to $38. However, despite this setback the shares recovered and erased most of their losses by June 2020, currently trading within $51 to $52 range.
The company also steadily increased its dividend payments over the years. Back in 2014, the quarterly payout to shareholders amounted to 18.75 cents per share. However, after consistent increases, those quarterly payments have reached 55.5 cents by 2020. It is notable that despite the enormous challenges brought by the outbreak of the COVID-19 pandemic, the firm still managed to recently increase its dividend by 3.7%. This is quite impressive considering that many other companies are cutting their payouts to shareholders in half or eliminating them altogether.
SunPower Corporation (SPWR)
SunPower Corporation has a lengthy history, which runs for more than 35 years. The company was originally incorporated in California, however, after going public in 2004, the firm was reincorporated in Delaware. As the annual report suggests, the firm delivers solar power solutions to residential, commercial, and power plant customers.
In addition to its regular sales, the company also offers financial solutions to its customers for buying or leasing solar energy products at competitive prices. This is very important for the long term success of the business. Usually, solar energy products are quite expensive and can be unaffordable for people with average incomes.
As a consequence, there are many individuals who are more than willing to invest in solar power in this way but simply can not afford it. Therefore, giving those people an option to buy those solar power products on installments can be very beneficial for those consumers and can help the company build customer loyalty.
The company stock currently trades close to $7.50 level. With Earnings per Share (EPS) indicator at $0.65, this means that the Price to Earnings (P/E) ratio of this security is near 11.5. This suggests that at current prices, compared to its earnings the company shares are significantly undervalued and do have a potential for a significant capital appreciation.
Hannon Armstrong (HASI)
The final company on our list is the Hannon Armstrong Sustainable Infrastructure Capital Incorporated. As the official annual report suggests, it is the first US public company to be solely dedicated to investing in climate change solutions. The firm provided capital for leading businesses in solar and wind energy and energy efficiency solutions.
By the end of 2019, the company manages $6 billion in assets. In fact, during the year, the average portfolio yield has reached 7.6%. Another impressive achievement of the company was the fact that from 2014 to 2019, the total shareholder return of its stock has reached 25%, more than 2 times higher than the S&P 500 average.
The company also has a decent track record of returning money to shareholders. Back in 2013, the quarterly dividend amounted to 22 cents per share. During the subsequent years, the company steadily increased its payouts, until in 2020 the quarterly payments reached 34 cents per share. So, going forward this stock can be attractive to both income and growth investors.