Use our Successful Investor approach to pick renewable energy stocks and you’ll cut your risk
Renewable power stocks have emerged as a prominent investment avenue worldwide, fueled by increasingly stringent governmental policies aimed at reducing greenhouse gas emissions and promoting sustainability. This shift has not only encouraged utility companies to invest in renewable energy projects, but also provides investors with new opportunities.
Emera: A Leading Contender in Sustainable Power Generation
Emera (symbol EMA on Toronto), a notable player in the renewable energy area, has been a leader in adopting sustainable practices. By decommissioning a significant portion of its coal-fired power plants and actively spearheading the development of new wind and solar ventures, Emera has achieved a remarkable 41% reduction in carbon emissions since 2005. Moreover, its commitment to achieving “net-zero” emissions by 2050 positions it favorably among institutional investors who prioritize Environmental, Social, and Governance (ESG) scores.
Mitigating Risks: The Key to Sustainable Returns
One potential drawback associated with renewable energy projects is their reliance on government subsidies, which can introduce uncertainty for investors. You may here these referred to as these types of stocks also referred to as green stocks. The category of green stocks is broad and can include wind power stocks, solar power stocks, geothermal and wave power. Green stocks have a lot of conceptual and emotional appeal as clean and renewable power sources. However, almost all green stocks rely heavily on government subsidies. These subsidies may suffer as governments grapple with the economic slowdowns, and when the cost of conventional energy sources, like oil and natural gas, falls.
Wind power stocks, solar power stocks and other green stocks can be very tempting to environmentally minded investors. The idea of making money while helping the environment is has a lot of conceptual appeal, but it shouldn’t distract you from your core financial goals. After all, if you don’t care if you lose the money, you might as well donate it to an environmental charity and get a tax receipt for it.
Meanwhile, Emera stands apart by deriving nearly all of its earnings from regulated power operations, including its renewable projects. This strategic move significantly mitigates the risks commonly associated with subsidy-dependent ventures, providing investors with a more stable investment opportunity. The company’s projected yearly dividend rate increase of 4% to 5% through 2025 further solidifies the appeal of investing in Emera.
Take a Close Look at the Sustainable Prospects of Renewable Power Stocks
While renewable power stocks, encompassing wind power, solar power, and other alternative energy sources, may appear desirable due to their clean and eco-friendly nature, it is essential to analyze their long-term investment prospects critically. Though they may experience periods of heightened speculative interest leading to temporary surges in share prices, they must demonstrate the requisite return on capital necessary for sustainable long-term investments.
Diversification: A Prudent Strategy to Minimize Risks
To cut risk, investors should avoid an exclusive focus on any one facet of alternative energy, such as wind or solar power. As mentioned, these industries carry risks due to their reliance on potentially uncertain government subsidies. Some alternative energy companies predominantly sell electricity under long-term government-guaranteed contracts, which may be subject to modifications or taxes that can erode profits.
To manage overall investment risk effectively, investors should diversify their portfolios across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance, and Utilities. This approach lets them capitalize on a broad range of market opportunities while mitigating the impact of sector-specific risks.
The world’s transition towards renewable power sources presents compelling opportunities, particularly in renewable power stocks. As the evolving landscape of sustainable energy opens new avenues for utility companies and attracts environmentally conscious investors, adopting a conservative investment approach and diversifying across sectors can optimize returns while contributing to a greener and more sustainable future. As well, by prioritizing stable, dividend-paying companies and exercising caution with media-driven stocks, investors boost their chances of success in the renewable power market.
Do you invest in renewable power stocks? Why or why not?