Seven Clean Energy Investments to Purchase as Inflation Shields

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Seven clean energy investments to purchase as inflation shields and sources of dividend income showcase three infrastructure funds and four stocks.

Clean energy infrastructure, including energy transportation and storage, has a similar-sized investment requirement to renewable energy, offers equivalent or higher returns and typically carries reduced risk due to its mostly monopoly-regulated nature, according to BofA Global Research. The investment firm also highlighted the defensive, inflation-indexed advantages of clean energy infrastructure cash flows that offer protection against rising rates and market mayhem.

Individual and institutional investors who are interested in clean energy can be influenced by environmental, social and corporate governance (ESG) concerns that focus on climate preservation, social consciousness and standards for leadership, executive pay and shareholder rights. The seven clean energy investments to purchase as inflation shields and sources of dividend income contrast with oil stocks that can fall short of the ESG standards due to non-financial factors.

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Pension Head Touts Two of Seven Clean Energy Investments to Purchase as Inflation Shields 

Bob Carlson, a pension fund chairman who also leads the Retirement Watch investment newsletter, said he recommends investing in clean energy through diversified infrastructure-focused mutual funds. Established infrastructure companies are leading the way in developing and using clean energy sources, he added.

Plus, such infrastructure companies have well-established sources of cash flow that increase with inflation, Carlson counseled. A mutual fund manager with a diversified portfolio will be able to separate the well-run clean energy sources and those with the best technology from others whose performance hinges on hype and headlines, he continued.

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One of the two funds favored by Carlson is Cohen & Steers Global Infrastructure (CSUAX). It has the leeway to invest in any type of infrastructure company in the world. Infrastructure companies provide the physical framework that society requires to function and consist of utilities, pipelines, toll roads, airports, railroads, marine ports and telecommunications companies.

Recently, about one-third of the fund was invested in electric utility companies, while freight railways accounted for 10%. Its top holdings include NextEra Energy Inc. (NYSE: NEE), Norfolk Southern Corp. (NYSE: NSC), American Tower (NYSE: AMT), Canadian National Railway (NYSE: CNI) and Enbridge Inc. (NYSE: ENB).

This is an open-end fund that has several share classes with different fees, also known as loads in the investment arena. Most brokers make the Class A shares available without front-end loads, Carlson advised. The fund is down 3.43% so far in 2022 but up 10.06% for the past 12 months.

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UTF Is Second of Seven Clean Energy Investments to Purchase as Inflation Shields 

Carlson’s second recommendation is the closed-end fund Cohen & Steers Infrastructure (UTF). Its portfolio is similar to that of CSUAX but there are differences, too.

UTF’s top five holdings consist of NextEra Energy Inc., American Tower Corporation, Enbridge Inc., Transurban Group (OTCMKTS: TRAUF) and Norfolk Southern Corporation. As a closed-end fund, UTF uses a 27.4% leverage ratio, according to Morningstar.

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A downside of UTF is that it trades at a 0.22 discount to net asset value. The fund usually sells at a discount. The fund is down 5.61% for the year to date but up 5.81% during the past 12 months.

Pension and Retirement Watch chief Bob Carlson takes questions from Paul Dykewicz.

Energy Guru Sees Brightened Outlook for NextEra Energy

NextEra Energy, a utility in Juno Beach, Florida, is going through a leadership transition that seems to be weighing down its share price in the short term and consequently holding back the recent performance of CSUAX and UTF. Shares of NEE fell from $94 to $75 after the company announced a leadership change, said Bryan Perry, a Wall Street veteran who now heads the Cash Machine investment newsletter, as well as the Premium Income, Quick Income Trader, Breakout Options Alert and Hi-Tech Trader advisory services.

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NextEra named John Ketchum its president and CEO, succeeding longtime CEO Jim Robo. Ketchum is a 19-year NextEra veteran, currently serving as the CEO of its energy resources segment, Perry wrote to his Premium Income subscribers on Feb. 8. Robo is regarded as an amazing CEO who is responsible for guiding the transformation of the former Florida Power & Light Co., the state’s largest electric utility, into NextEra Energy, Perry opined.

NextEra posted strong fourth-quarter results, boosting earnings per share by 10.4% in 2021. The company also raised guidance for 2022 and 2023, expecting to deliver double-digit-percentage earnings growth in 2022. A major growth driver is the company’s success in securing new renewable energy development projects, Perry added.

Paul Dykewicz interviews Bryan Perry, head of Quick Income Trader and Premium Income.

The company has a deep bench of capable executives and John Ketchum will do fine at the helm, Perry opined. Plus, Robo will remain executive chairman during the transition. Another plus is that NextEra Energy offers a dividend yield of 2.1%.

NextEra posted strong fourth-quarter results, growing earnings per share by 10.4% in 2021. The company also raised guidance for 2022 and 2023. It expects to deliver double-digit-percentage earnings growth in 2022. A major driver of growth is the company’s success in securing new renewable energy development projects.

NextEra Energy is the top holding in the Utilities Select Sector SPDR ETF (XLU), with a 17.1% weighting. At its current price, the dividend yield for NextEra Energy is 2.1%. This is a rare opportunity to buy this stock at an attractive discount when the fundamentals are just as strong as ever, said Perry, who also recommends XLU, which offers a current dividend yield of 3.3%.

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Seven Clean Energy Investments to Purchase as Inflation Shields Feature Three Utility Stocks

Three clean energy stocks recommended by BofA Global Research are headquartered in Europe. The European utilities are expected to benefit from a large increase in clean energy transportation.

One of the three clean energy stocks is Terna S.p.a. (OTCMKTS: TEZNY), a transmission system operator in Rome, Italy. The company operates through Terna Rete Italia, which manages the Italian transmission grid, and Terna Plus, which pursues new business opportunities and non-traditional activities in Brazil, Uruguay, Peru and Chile.

All three of the European clean energy stocks highlighted by BofA have regulatory tailwinds helping to propel them. BofA forecasts that Terna is due for a structural re-rating.

For example, Terna’s capital expenditure in 2025 is estimated to exceed three times the 2000-20 average to gird the electric grid for an energy transition. Plus, Terna has strong and underappreciated ESG credentials, regulatory certainty and contractual, uncapped positive inflation that is geared to the Italian Consumer Price Index (CPI).

Seven Clean Energy Investments to Purchase as Inflation Shields Include Iberdrola

Iberdrola SA (OTCMKTS: IBDRY), a major wind producer and one of the largest electricity companies by market capitalization in the world, is another of the three BofA clean energy recommendations. Based in Bilbao, Spain, the multinational electric utility company is expected to benefit from a once-in-a-generation investment opportunity in renewables and electricity networks.

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Iberdrola remains undervalued by historical standards, trading at 13x BofA’s 2023 estimated P/E, about 2-3x below the sector average, the investment firm wrote. Furthermore, BofA predicted Iberdrola will lock in sufficient price hikes from forward sales to include positive impact in guidance, along with mark-to-market foreign exchange changes.

With group capital expenditures in the 2021-30 decade nearly 3x spending in 2011-20, the company should earn attractive returns, BofA wrote. The stock appears poised to withstand inflationary risks and BofA predicts that rate concerns are more than accounted for in the stock’s current price.

E.On Is One of Seven Clean Energy Investments to Purchase as Inflation Shields 

E.On (OTCMKTS: EONGY), an electric utility company based in Essen, Germany, operates one of the world’s largest investor-owned electric utility service providers.

Uniquely positioned to benefit from significant electricity grid strengthening requirements in Europe and especially in Germany, E.On demonstrated during its recent Capital Market Day how its business model is closely aligned with the transition to clean energy. Structural growth trends in renewables, decarbonization and digitalization were reflected in an ambitious set of operational targets for 2021-26, BofA wrote.

Key operational targets topped the investment firm’s expectations, including a €27 billion, or $30.85 billion, capital expenditure budget vs. consensus of €23 billion, or $26.28 billion. BofA’s forecast of 2021-26 estimated core earnings per share (EPS) compound annual growth rate (CAGR) of 8% is above the 5-7% EPS CAGR guidance given by the utility’s peers.

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Clean Energy Transportation Will Require Capital Investment in the Future

Roughly 10 billion tonnes of oil and coal — weighing as much as 1 million Eiffel towers — and 3.4 trillion cubic meters of natural gas need to be delivered around the world annually from the original source to the point of final consumption, according to BofA. But the current fossil fuel distribution network must be dismantled and replaced with new infrastructure focused on electricity grids and hydrogen.

Bloomberg New Energy Finance (BNEF) forecasts estimate global electricity and hydrogen transport and storage investment could exceed $50 trillion between 2020 and 2050, more than the $37 trillion than the prognosticator predicts for renewable generation. Global renewable power generation is expected to grow 260% between 2020-50, driven by 750% gains in offshore wind output and 690% in onshore and solar, according to BNEF.

At the same time, electrification of energy demand will spur transport, heating and a range of other activities to switch from fossil to electric. Electricity, as a share of final energy consumption, will rise from 20% today to more than 50% in 2050, implying volumes of electricity flowing through global grids doubling to 47 peta-watt hours by 2050.

Electricity Trend Helps to Fuel Seven Clean Energy Investments to Purchase as Inflation Shields

Plus, BofA predicts several of the most visible energy transport methods, such as trains, trucks and ships carrying coal, oil and gas, will become largely obsolete with an “infrastructural revolution.” In the future, there will be many ways to transport energy, including biofuels, uranium and others.

But only two are currently capable of distributing and storing energy at massive global scale: electricity networks and hydrogen pipelines, according to BofA. These two technologies are set to “scale very significantly,” BofA added.

Hydrogen could be the conduit for supplying 7 peta-watt hours, or close to 10% of world energy consumption, by 2050, according to the Paris-based International Energy Agency (IEA). However, electricity networks have received less focus from investors, despite a projected doubling of energy flowing through electricity grids by 2050, BofA wrote. That transition will entail major forms of fossil fuel consumption switching to electric, including road transport and heating for buildings.

COVID-19 Concerns Convince CDC Director to Emphasize Indoor Mask Wearing

The chief of the U.S. Centers for Disease Control and Prevention (CDC) is championing the agency’s indoor mask-wearing guidelines, cautioning on Feb. 8 that now is not the time to weaken resolve by loosening restrictions to curb COVID-19. CDC Director Dr. Rochelle Walensky said she still will “encourage” students to wear well-fitting masks indoors consistently, along with people who are in public indoor settings of high or “substantial transmission.”

The latest data show the new Omicron subvariant of COVID-19 is transmitting faster and more potently than the original, so public health officials are continuing their pleas for vaccinations and boosters.

A bright sign is that Pfizer-BioNTech are pursuing authorization for their vaccine aimed at children under the age of 5. However, the Foods and Drug Administration announced on Feb. 11 that it would wait for data on how well a third shot works for that age group. Pfizer Inc. (NYSE: PFE) announced that it expected the data by early April. Pfizer further reported on Feb. 8 that it projects to sell $32 billion of its COVID-19 shots and $22 billion of its antiviral coronavirus treatment pill, Paxlovid.

The continuing COVID-19 threat is leading additional people in America to obtain COVID-19 boosters. However, more than 60 million people in the United States remain eligible to be vaccinated and have yet to do so, said Dr. Anthony Fauci, the chief White House medical adviser on COVID-19.

COVID-19 Cases Worldwide Top 407 Million and Cause Nearly 5.8 Million Deaths

As of Feb. 11, 251,755,851 people, or 75.8% of the U.S. population, have received at least one dose of a COVID-19 vaccine, the CDC reported. Those who are fully vaccinated total 213,563,173, or 64.3% of the U.S. population, according to the CDC.

COVID-19 deaths worldwide, as of Feb. 11 neared the 5.8 million mark by hitting 5,798,343, according to Johns Hopkins University. Worldwide COVID-19 cases have soared past 407 million, reaching 407,771,748 on that date.

U.S. COVID-19 cases, also as of Feb. 11, topped 77.5 million, totaling 77,552,386 and leading to 917,744 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The seven clean energy investments to purchase as inflation shields and sources of dividend income may intrigue investors concerned about environmental, social and executive governance considerations. That clean energy opportunity only seems destined to brighten.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

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