This year was, in many ways, a landmark for renewable energy stocks. The industry has been growing steadily for the past decade. However, I think the conversation has shifted up a gear over the past 12 months.
Consumers and governments are becoming more conscious about the impact of energy generation on the environment. Money is flooding into the renewable energy industry as a result.
Investors are spoilt for choice when it comes to picking renewable energy stocks. I think a couple of businesses have far better outlooks than most others in the sector. These are the companies I would buy for my portfolio today.
Renewable energy stocks to buy
One company has stronger renewable credentials than almost any other, in my opinion, and that is SSE.
A couple of weeks ago, this business laid out plans to accelerate its green energy investments. Unfortunately for income investors, management is going to cut the dividend to fund the spending, but I think that is going to be the right choice in the long term. Utility providers like SSE cannot afford to ignore the renewable energy trend.
That said, there will be a risk that by putting all of its eggs into one basket, the company could miss out on other trends. This is something I will be keeping an eye on as we advance.
But SSE will form the core of my renewable energy portfolio. And around this stock, I would buy more speculative investments, which have a focus on a particular sector or industry.
One such organisation is AFC Energy. This firm is developing technology to help companies produce green hydrogen — hydrogen created with green renewable energy.
It is still in its early stages of growth, but I think this business has tremendous potential. Hydrogen could be one of the fuels of the future if companies can get around the challenge of producing it cleanly and cheaply.
Still, I should make it clear that this is a high-risk investment. AFC is still losing money, and it could be years before the corporation is generating a sustainable revenue stream.
Income from renewables
I would also acquire Renewables Infrastructure Group for my portfolio. This company aims to generate a steady stream of income and capital growth for its investors by developing a portfolio of wind and solar farms across the UK and Europe. This makes the firm less speculative and others in the sector, as it owns a diversified portfolio of assets, many of which are already generating income. It also currently supports a desirable dividend yield of 5.2%.
These are the reasons I would buy the stock, although I will be keeping a close eye on the company’s acquisitions. If it decides to expand its portfolio rapidly by acquiring subpar assets, this could prove to be a significant drag on returns.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.