With the demand for green energy set to explode over the next few years, I’ve been looking for renewable energy stocks to buy for my portfolio to capitalise on this trend. Here are two companies I’d buy for my portfolio right now.
Stocks to buy
The number of renewable energy stocks in the UK is relatively limited. Therefore, I’ve been looking overseas for other options. One of the best companies I’ve found is NextEra Energy (NYSE: NEE).
As of May 2021, NextEra’s the world’s largest producer of wind and solar energy. It’s far bigger than anything we have here in the UK and has substantial economies of scale from its giant renewable energy projects across the United States in Canada.
Given the company’s size, scale and reputation, it looks as if it’ll be a significant player in the renewable energy sector for the foreseeable future. That’s why I believe this is one of the best stocks to buy in the industry today. It could also benefit from Joe Biden’s $2.3trn infrastructure plan and the president’s commitment to halving US greenhouse gas emissions by 2030.
As well as the group’s growth potential, the stock also offers a dividend yield of 2.1%.
However, this company might not be suitable for all investors. Its North American focus means its success is highly dependent on what happens across the pond. Some investors might find it challenging to interpret the laws and developments that occur in the US, which could have a significant impact on NextEra’s business.
Despite this risk, I’d buy the company for my portfolio of renewable energy stocks today.
Renewable energy stocks
Back in the UK, I’d also buy Greencoat UK Wind (LSE: UKW). Put simply, I think this is one of the best stocks to buy in the green energy space. This is due to its exposure to wind energy, extensive portfolio, experienced management team and dividend yield. Indeed, at the time of writing, the stock offers a dividend yield of 5.7%.
This shareholder payout is funded by income from its portfolio of UK wind farm projects. The majority of the company’s revenue is generated through Power Purchase Agreements. These aren’t fixed pricing agreements, therefore the firm has some exposure to UK power prices.
The structure has its benefits and drawbacks. On the one hand, the company will earn higher profits if power prices jump. On the other, if prices slump, due to oversupply, profits will fall. This could be particularly troublesome for Greencoat, considering the corporation’s elevated level of debt. If profits fall substantially, the firm may have trouble meeting its debt obligations.
Still, I believe this is one of the best renewable energy stocks to buy today for the reasons outlined above. That’s why I’d buy Greencoat right now.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.