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After a stellar rise in 2020, stocks in the renewable energy space have lost momentum this year. Investor concerns around valuations and a rise in interest rates have contributed to a broader market sell-off in 2021.

Two renewable energy stocks that have managed to generate outsized returns for investors over the long term are NextEra Energy (NEE) and Brookfield Renewable Partners (BEP). Both these stocks have trailed the market this year, however. While NextEra is down 10.4% this year, Brookfield Renewables has lost close to 20% in 2021.

So, let’s take a detailed look at these two companies’  business models to ascertain which is the better contrarian bet currently.

The bull case for NextEra Energy

NextEra Energy provides electricity-related services. Its primary subsidiary is FPL (Florida Power & Light), which is a rate-regulated utility engaged in the generation, distribution, and sale of electric energy. In the first quarter of 2021, the company reported $1.33 billion in adjusted earnings or $0.67 per share. This represented a 14%  increase year over year. Its  FPL subsidiary is the largest rate-regulated utility provider in the U.S. and grew its bottom-line by 12% in Q1.

According to the company’s earnings call, NextEra spent $1.4 billion in the March quarter to expand and modernize operations. It completed approximately 300 MWs (megawatts) of solar projects in Q1 and is now the leader in solar energy capacity in the country.

NextEra expects earnings of  $2.40 – $2.54 in 2021, which indicates 7% year-over-year growth. In 2022, it expects earnings between $2.55 and $2.75, while in 2023 its bottom-line is estimated at between $2.77 – $2.97 per share. This improvement in earnings should help support NextEra’s goal of increasing its dividend payouts by 10% annually through 2022.

NextEra already has one the largest renewable energy portfolios in the world and operated 22 GWs of wind and solar assets at the end of 2021. It now has close to 16 GWs of backlog contracts that will drive top-line growth in 2021 and beyond.

The bull case for Brookfield Renewables

Canada-based Brookfield Renewables owns and operates a diverse portfolio of power generating facilities that represent approximately  20 GWs of power generating capacity. BEP stock was down on April 19 after the company revealed it sold 400 MWs of wind-power assets to NextEra Energy. This represents approximately  8% of Brookfield’s total wind-power generating capacity. Last week, Brookfield also agreed to sell its onshore wind operations in the U.K. and Ireland to Denmark-based Orsted.

The two deals will allow Brookfield to generate some$1.3 billion and boost its liquidity position. These transactions are part of the company’s capital recycling program in which it sells mature assets and uses the proceeds to fund projects that deliver a higher return.

Brookfield intends to invest approximately  $1 billion each year in acquisitions and other development projects. These projects will be financed by asset sales, like the aforementioned sales. Brookfield is optimistic about increasing its cash flow per share by 10% annually through 2025 despite these asset sales. The improvement in cash flows will also support dividend increases in the future. BEP stock has a forward yield of 4.9% and the company aims to increase payouts between 5% and 9% annually.

The verdict

The shift to green energy solutions at the global level will be the key driver of revenue and earnings growth for NextEra and Brookfield. The two companies continue to build robust portfolios of cash-generating assets that will support future dividend increases.

It’s difficult to choose between the two renewable energy heavyweights. Brookfield Renewables is valued at a market cap of $11 billion, which is 14x lower than NextEra’s market cap of more than  $150 billion. It’s possible that Brookfield will be able to grow faster than NextEra and generate outsized returns. However, BEP’s smaller size also makes it a riskier bet.

NextEra is a blue-chip utility giant that has predictable earnings, stable cash flows, enticing growth prospects, and a diverse portfolio of renewable energy assets, making it, we believe, a better choice right now.

NEE shares fell $0.27 (-0.35%) in after-hours trading Wednesday. Year-to-date, NEE has gained 1.59%, versus an 11.65% rise in the benchmark S&P 500 index during the same period.