3 Clean Energy Dividend Stocks That Are Passive Income Powerhouses

With many oil and gas stocks hitting all-time highs off of record profits, it's been easy to turn a blind eye to the multi-decade growth potential of renewable energy. And while there are many ways to invest in renewable energy, the simplest is to find companies that are either directly financing large-scale projects or are pick-and-shovel plays that are instrumental in providing products and services to support the industry.

The Motley Fool asked its contributors to offer up ideas on clean energy dividend stocks that would be great buys right now. Clearway Energy (CWEN)Honeywell International (HON), and Brookfield Renewable (BEPC) (BEP) were offered up as answers. All three companies are forecasting steady low-risk growth — which is particularly attractive for risk-averse investors who believe in the energy transition but don't want to invest in an expensive growth stock. Here's what the reporters had to say about these passive income powerhouses.

Clearway Energy is the high-yield dividend stock to energize your holdings

Scott Levine (Clearway Energy): Looking to supercharge your passive income stream? Clearway Energy might just be the answer. Offering investors a powerful 4.4% forward dividend yield, Clearway Energy operates a variety of energy assets, inking long-term power purchase agreements with customers. While the company's portfolio includes some conventional energy operations — about 2.47 gigawatts (GW) — renewable energy facilities account for the lion's share with 3.7 GW of wind and 1.95 GW of solar.

There's no debate that the high-yield dividend Clearway Energy offers is alluring, but smart investors rarely take these attractive figures at face value. Instead, they want to know if the company's higher-than-average payout is sustainable. In the case of Clearway Energy — which has a dividend growth rate goal of 5% to 8% annually through 2026 — it certainly seems as if the company is well-positioned to maintain its hefty distribution. Management forecasts $350 million in cash available for distribution (CAFD) for 2022 with CAFD rising to about $410 million in 2023. From another perspective, the company seems poised to continue growing CAFD beyond 2023.

On Clearway Energy's Q3 2022 conference call, management noted that once capital from the sale of its thermal business is deployed (it should be completed by the end of 2024), Clearway Energy should generate CAFD of more than $2.15 per share. For context, investors collected $1.43 in dividends per share in 2022.

Fortunately, green energy investors won't have to dig deep into their pockets for Clearway Energy's stock. Shares are currently valued at 4.9 times cash from operations — the same as their five-year average cash-flow valuation.

Honeywell's growth investments are set to pay off in the coming years

Lee Samaha (Honeywell): This industrial conglomerate may not immediately strike investors as a clean energy play, but its sustainable technology solutions (STS) business is set to contribute to its long-term growth rate significantly. Honeywell is a mature industrial conglomerate, and as the investing saying goes, “elephants don't gallop.” 

Indeed, Honeywell management expects the company's long-term annual growth rate to be in the range of 4%-7%. As such, every bit of marginal growth, even just 1% of growth, does make a difference to its long-term earnings potential.

That consideration springs to mind when considering Honeywell's STS (advanced plastics recycling, low-emission sustainable aviation fuels, renewable energy storage, carbon capture, and hydrogen economy solutions). Management estimates STS revenue will grow at a 50% compound annual growth rate from $200 million in 2021 to $700 million in 2024.

Again, that may not sound like much for a $35.5 billion revenue company. Still, for illustrative purposes, if that $700 million in 2024 grows at a 50% rate in 2025, it will add $350 million to revenue — a figure equivalent to almost 1% of current revenue. Moreover, the growth at STS is likely to be supplanted by additional investment and the ongoing development of Honeywell's STS initiatives in carbon capture and energy storage.

All told, Honeywell's clean energy solutions help to diversify its revenue streams, add growth, and maintain its dividend, currently yielding 2%.

The future is bright for Brookfield Renewable

Daniel Foelber (Brookfield Renewable): Despite posting impeccable 2022 results, Brookfield Renewable stock has languished and is currently trading near a two-year low.

The company is in the business of funding renewable energy projects that produce steady cash flows, which support a stable and growing dividend. Brookfield Renewable currently sports a sizable 4.6% dividend yield — which is higher than the 10-year Treasury rate of 3.7%. However, a rising risk-free interest rate disincentivizes holding a company like Brookfield Renewable because its dividend is relatively not as attractive. Given its reliable yet low growth, it would be difficult for Brookfield Renewable stock to rise to the point where its yield is higher than the risk-free rate. So until the risk-free rate comes down, I would expect Brookfield stock to stay challenged in the short term.

That being said, Brookfield Renewable still remains one of the best ways to gain exposure to renewable energy growth. The company commissioned 3.5 GW of capacity in 2022 and nearly doubled its renewable power pipeline to 110 GW. It also expects to bring 5 GW online in 2023, which the company said is largely de-risked given the majority is under construction or fully contracted. 

The beauty of Brookfield Renewable is its simple yet effective business model of contracting assets under stable long-term contracts, producing cash flows from those assets, using those cash flows to fund even more projects, and so on — all the while returning capital to shareholders through the dividend. The company has grown its payout by at least 5% for 12 consecutive years. And with renewable energy investment expected to grow exponentially from here, the company has a long runway ahead of it.

If Brookfield Renewable yielded less than the risk-free rate, it wouldn't be as screaming of a buy. But with a 4.6% yield and the stock price down 52.2% from its all-time high, now is the time to consider Brookfield Renewable.

Originally published on Fool.com

Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has positions in Honeywell International. Scott Levine has positions in Brookfield Renewable. The Motley Fool has positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.