There are two very big trends happening on this planet in relation to energy, but they may not be what you predict: The primary is that the worldwide population is growing. The second is that lower-income countries are moving up the socioeconomic ladder.
These two trends are what you actually need to know when the clean energy transition that is also happening at once. And whenever you do, you will understand why Brookfield Renewable Partners (NYSE: BEP) and Chevron (NYSE: CVX) are each low-cost and reliable dividend stocks you will find attractive today.
Oil and gas are being replaced by cleaner alternatives, but slowly
The world has undergone energy transitions before, shifting from biomass (wood) to coal, and from coal to grease. What’s interesting is that, whenever you examine the world’s biggest sources of energy, biomass and coal are still material producers of power, despite having been dethroned because the principal source by other options.
Oil and natural gas are No. 1 today, but that seems more likely to change as clean energy demand and production grow.
But identical to previous energy transitions, it is extremely unlikely that solar and wind suddenly replace oil and gas. The truth is, energy industry watchers largely agree that oil and natural gas will remain essential for a long time to return at the same time as clean energy grows in importance.
The rationale? A more populous world and better incomes would require an all-of-the-above approach since the demand for energy grows together with the population and incomes. Demand for oil and natural gas might even increase!
So investors have two energy plays to think about. The primary is to purchase an organization like Brookfield Renewable Partners that advantages from clean energy’s growth. The second is to purchase an oil and natural gas company, like Chevron, that may proceed to learn from the still-strong underlying demand for carbon fuels. The most effective part? Each of those high-yield stocks look low-cost at once.
Chevron has been marked down by 20%
Chevron’s stock price has fallen roughly 20% from its recent peak in late 2022. That has quite a bit to do with the value of oil, which has also declined over that very same span. That makes complete sense because Chevron is an integrated energy company, with top and bottom lines which can be heavily influenced by energy prices.
But as an integrated energy company, it also has operations within the midstream (pipelines) and downstream (chemicals and refining) sectors. Having exposure to all three helps to even out financial performance over time. It’s a comparatively conservative option to spend money on the energy space.
It also has a rock-solid balance sheet, with a debt-to-equity ratio of just 0.15. That might be low for any company, but for Chevron, it gives management the leeway to extend leverage when oil prices are weak to assist support the business and dividend.
Highlighting Chevron’s consistency is its 37-year streak of annual dividend increases, which is pretty impressive given the inherent volatility of the energy sector.
Chevron’s stock is commonly most engaging when oil prices are plunging, but for conservative dividend investors, the roughly 20% drop within the stock makes it price looking into today. Indeed, the yield is a horny 4.3%, which is notably above the 1.2% from the S&P 500 Index and above the three.4% of the common energy stock, using the Energy Select Sector SPDR ETF as an industry proxy. Those dividend comparisons make Chevron look attractively low-cost at once.
Brookfield Renewable Partners has been cut nearly in half
Brookfield Renewable Partners is perhaps much more interesting than Chevron, on condition that its units have declined an enormous 47% since hitting a high-water mark in early 2021. That may appear odd given the long runway for growth within the clean energy sector, but you have got to do not forget that Wall Street is a fickle place. Before 2021, renewable power was a hot story. After which investors got bored and moved on, despite the continued transition taking shape.
To be fair, competition has increased within the sector, which makes profitability harder to realize. But Brookfield Renewable Partners is a financially strong business with a proven history of success.
The prime example of that is the distribution, which has increased by roughly 6% annually over the past 20 years. That shall be music to the ears of most income investors.
Also, Brookfield Renewable’s parent company is Brookfield Asset Management (NYSE: BAM), one among Canada’s largest and most respected asset management firms. It has an extended history of investing globally within the infrastructure sector. Brookfield Renewable is, really, a way for small investors to partner up with a longtime industry leader in infrastructure and collect big distributions from it.
The one caveat here is that, given the asset management approach, Brookfield Renewable Partners has a history of actively buying and selling clean energy assets. This business shouldn’t be operated like a typical regulated utility, which implies you’ll likely wish to track it fairly closely.
But with Brookfield’s lofty 5.5% distribution yield, that extra work shall be well well worth the effort. Note that the common utility, using the Utilities Select Sector SPDR ETF as a proxy, is just yielding 2.7% today. That makes Brookfield Renewable Partners look incredibly low-cost.
Low cost and reliable
If you happen to are occupied with adding some out-of-favor dividend payers to your portfolio, look no further than Chevron and Brookfield Renewable Partners. Each look low-cost today whenever you compare their yields to other alternatives. And, despite being at opposite ends of the clean energy revolution, each have long-term income appeal.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Brookfield Asset Management and Chevron. The Motley Idiot recommends Brookfield Renewable Partners. The Motley Idiot has a disclosure policy.
2 Incredibly Low cost and Reliable Dividend Stocks With Yields As much as 5.5% to Buy Now was originally published by The Motley Idiot