Wind energy is booming in the U.S. and around the world, accounting for more than one-third of all electricity capacity installed globally in the last five years. Growth has been driven by larger turbines both on- and offshore and improving efficiency in the turbines that are already installed. A business worth hundreds of billions of dollars annually has been forming right under our noses, but hasn't been grabbing many headlines in the energy industry.
Investing in wind energy, however, is easier said than done. Manufacturing is largely done within large conglomerates, and asset ownership often falls to utilities or corporations that have much bigger exposure to other business lines. But there are a few stocks investors should look at for exposure to the industry.
There aren't a large number of components in a wind farm as there might be in a solar farm, so turbine manufacturers are involved in building everything from the tower to the blades that catch the wind. The three to look at as potential investments are General Electric (NYSE: GE), Siemens (NASDAQOTH: SIEGY), and Vestas Wind Systems (NASDAQOTH: VWSYF) (NASDAQOTH: VWDRY).
Of these, Vestas is the most focused on wind because that's its entire business. The company makes turbines large and small for both onshore and offshore plants, and is also a leader in the service business, which generates recurring revenue.
Both General Electric and Siemens are electricity conglomerates that have wind energy as part of their respective businesses. Both may look at wind as a key growth market, but it still only accounts for around 10% of revenue for both companies. These are big players in wind, but they're even bigger in other parts of the energy industry, and that's what makes them tough investments for their wind business alone.
Investing in dividends
Beyond manufacturing, a great option for investing in wind is owning shares in actual wind farms. Investors can do that through yieldcos, which use contracted cash flows to pay dividends.
Pattern Energy (NASDAQ: PEGI) is a wind-focused yieldco with 2,736 MW of generating capacity in the U.S., Canada, and Chile. The average power purchase agreement for its wind turbines is 14 years, with investment-grade offtakers like utilities. The company also has growth opportunities, with $1 billion in new capital commitments for its development arm, called Pattern Development 2.0, which has a pipeline of up to 10 GW of projects. With all of those assets in tow, investors still get a whopping 7.8% dividend yield from Pattern Energy, making it a great play in wind energy.
TerraForm Power (NASDAQ: TERP) is another yieldco that owns renewable energy assets, with 39% of its cash available for distribution coming from wind projects. The remainder comes from solar assets. After years of turmoil following the bankruptcy of its sponsor, SunEdison, Brookfield Asset Management took over as the sponsor in 2017. The new management is already bringing stability and a more realistic dividend growth target of 5% to 8% annually, with some growth coming organically from cash flow not used to pay the dividend. With a dividend expected to be $0.72 per share in 2018, or a 6.2% yield, this is a wind energy company with a nice payout and a bright future ahead.
Betting on wind energy
There may not be a lot of public wind energy companies, but the ones that are available are big players in the industry. Vestas Wind Systems and Pattern Energy are the best pure plays, with Siemens, General Electric, and TerraForm Power also providing investors with wind exposure from more diversified businesses. No matter how you want to play it, there's a way for everyone to invest in wind energy.
10 stocks we like better than Vestas Wind SystemsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Vestas Wind Systems wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of December 4, 2017