Better Energy Stock: Brookfield Renewable vs. Clearway Energy

Brookfield Renewable (NYSE: BEPC) (NYSE: BEP) and Clearway Energy (NYSE: CWEN) (NYSE: CWEN.A) are two of the largest renewable energy producers in the country. Those assets generate lots of steady cash flow, which they pay out in dividends. Brookfield Renewable currently yields nearly 5.5%, while Clearway Energy's payout is above 6.5%.

Those high-yielding dividends make them two of the top renewable energy dividend stocks. However, since most investors don't want to hold too many stocks, they likely only have room for one in their portfolio. Here's a look at which is the better energy stock to buy right now.

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Similar, yet not the same

Brookfield Renewable and Clearway Energy are leading renewable energy producers. They sell most of the power they produce under long-term, fixed-rate power purchase agreements (PPAs) with utilities and large corporate buyers. Those PPAs supply them with steady cash flow to fund their lucrative dividends.

Another notable similarity is that parent companies sponsor and control these entities. Brookfield Corporation owns about a 48% interest in Brookfield Renewable, which is one of its operating businesses. Meanwhile, Clearway Energy Group (CEG), co-owned by TotalEnergies and BlackRock's Global Infrastructure Partners, owns a controlling interest in Clearway Energy.

Despite those similarities, there are several key differences between the two companies. Brookfield Renewable operates one of the world's largest publicly traded renewable power and decarbonization solutions platforms. Its globally diversified portfolio featuring hydroelectric, wind (onshore and offshore), and solar (utility-scale and distributed energy) assets spans five continents. It also has investments in global nuclear services, carbon capture, solar panel manufacturing, biofuels, and advanced recycling.

In addition to its sizable operating portfolio (37 gigawatts, or GW), Brookfield Renewable is one of the largest clean energy developers in the world, with a massive pipeline of future projects (around 200 GW). It has acquired several renewable energy development companies around the world in recent years to enhance its expertise, increase its scale, and grow its pipeline.

Clearway Energy, on the other hand, has a much more focused portfolio and strategy. It's one of the largest owners of clean energy generation assets in the U.S., with 11.7 GW of capacity across 26 states. It has about 9 GW of wind, solar, and energy storage capacity and over 2.7 GW of natural gas-fired power production capacity.

A differentiated growth profile

Brookfield Renewable and Clearway Energy have a lot of visibility into their future growth due to their PPAs and secured investments. For example, Clearway Energy sold its thermal assets a few years ago and has been recycling that capital into higher-returning renewable energy investments. It has secured several dropdown transactions with CEG to acquire operating renewable energy assets it's developing. Those transactions give it lots of visibility into its ability to grow its cash available for distribution (CAFD) over the next few years.

It expects to grow its CAFD by a 7.5% to 12.5% compound annual rate from this year's baseline through 2027, which should support dividend growth in the bottom half of its 5% to 8% annual target range. Over the longer term, it expects to deliver 5% to 8%-plus CAFD per share growth each year, supported by additional dropdowns of renewable energy projects developed by CEG. It aims to fund that growth primarily with retained cash after paying its dividend and new debt. That should support dividend growth within that target range.

Meanwhile, Brookfield Renewable expects a quartet of growth drivers (inflation-linked rate increases on existing PPAs, securing higher market rates as legacy PPAs expire, development projects, and accretive M&A) to power more than 10% annual FFO per-share growth. That growth is highly visible and secured through 2029. It easily supports the company's plan to increase its dividend by around 5% to 9% annually.

Brookfield's high-return development program is a big factor driving its higher growth rate. Development projects should add 4% to 6% to its FFO per share each year. On top of that, the company is a serial acquirer, thanks to its relationship with Brookfield Corporation, which manages several renewable energy funds through its Brookfield Asset Management subsidiary. That relationship provides Brookfield Renewable with more capital to fund acquisitions.

Higher income now versus higher total return potential

Clearway Energy currently offers a higher-yielding dividend (6.5%) that should grow by 5% to 8% annually in the foreseeable future. Because of that, it's a slightly better energy stock for investors who want more income in the near term.

However, Brookfield Renewable expects to grow its cash flow much faster over the next several years, which could support a higher dividend growth rate over the long run. Because of that, it could have the power to produce higher total returns in the future. That makes it the better option for those seeking income with greater upside potential.

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Matt DiLallo has positions in Brookfield Asset Management, Brookfield Corporation, Brookfield Renewable Partners, and Clearway Energy and has the following options: short January 2025 $60 calls on Brookfield Corporation. The Motley Fool has positions in and recommends Brookfield, Brookfield Asset Management, and Brookfield Corporation. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.