5 Renewable Energy Stocks With a High Yield

The risks of climate change have stoked long-term interest in renewable energy, including solar power and wind energy. Renewable energy is one important path to mitigating climate change. It’s abundant, derived from natural resources, and can be replaced faster than it is consumed. It generates lower greenhouse gas emissions. That makes companies that create or use significant amounts of renewable energy an attractive place to begin hunting for investments while supporting the global transition to net zero emissions.

While renewable energy stocks can be fast-growing and volatile, you can also find opportunities to receive above-average dividends. We located five stocks included in the Morningstar North America Renewable Energy Index that provide attractive dividend yields and range from fairly valued to significantly undervalued. They are Avangrid AGR, Eversource Energy ES, Evergy EVRG, OGE Energy OGE, and Gilead Sciences GILD.

Dividend and Fair Value

At a glance, dividend yield is the ratio of the dividends paid by a company relative to its stock price. The price/fair value ratio indicates if the stock’s price is higher than the Morningstar estimate of its fair value. A ratio above 1.00 is considered overvalued, and a ratio below 1.00 is undervalued.

Dividend Yields and Valuation Ratios for 5 US Renewable Energy Stocks

Our Methodology

For this article, we looked at the holdings in the Morningstar North America Renewable Energy Index. We filtered the stock holdings to only include US-domiciled stocks and sorted these stocks by yield, with the highest on top.

The Morningstar North America Renewable Energy Index is designed to provide exposure to companies in the Morningstar Developed Markets Americas Index that derive at least 5% of revenue from renewable energy. It also includes companies that use renewable energy for at least 25% of their energy requirements, as measured by the Sustainalytics Sustainable Activities Involvement Metrics.

Avangrid 

Fair Value Estimate: $35.75

Morningstar Rating: 3 stars

Morningstar Uncertainty Rating: Medium

Morningstar Capital Allocation Rating: Standard

Industry: Utilities—Regulated Electric

Avangrid’s renewable energy development subsidiary is one of the largest developers of renewable energy projects in the United States. It owns over 8.6 gigawatts of wind and solar energy capacity across the US.

Writes Morningstar strategist Andrew Bischof in a recent report: “We forecast Avangrid will install nearly 2 gigawatts of new renewable energy capacity over the next five years. The unit’s current pipeline is roughly 26 gigawatts.”

Bischof also notes that “Avangrid’s diversified set of utilities operate in supportive regulatory jurisdictions, reducing the risk of adverse rulings and supporting long-term earnings and dividend growth.”

Eversource Energy 

Fair Value Estimate: $73

Morningstar Rating: 4 stars

Morningstar Uncertainty Rating: Low

Morningstar Capital Allocation Rating: Standard

Industry: Utilities—Regulated Electric

Eversource Energy is one of the largest utilities in the US Northeast after its 2012 merger with NStar, 2017 acquisition of Aquarion, and 2020 acquisition of Columbia Gas.

In a recent report, Morningstar strategist Travis Miller writes: “We assume Eversource invests $18 billion in 2024-27 at its electric and gas utilities to help meet regional clean energy targets and strengthen the grid. This should support 6% annual average earnings and dividend growth at least through 2026.”

Evergy

Fair Value Estimate: $65

Morningstar Rating: 4 stars

Morningstar Uncertainty Rating: Low

Capital Allocation Rating: Standard

Industry: Utilities—Regulated Electric

Evergy formed in June 2018 when Great Plains Energy of Kansas City, Missouri, and Westar Energy of Topeka, Kansas, merged. “With the integration complete and a new management team in place, Evergy is working to improve historically challenging regulation and invest in clean energy,” writes Morningstar’s Miller.

Miller adds: “Since the merger, the board has raised the dividend an average of 6% annually, including a 7% increase for 2023. Management’s payout ratio target is 60% to 70% of operating earnings, in line with most other regulated utilities. We forecast 6% dividend increases for at least the next four years, in line with earnings growth.”

OGE Energy

Fair Value Estimate: $38

Morningstar Rating: 3 stars

Morningstar Uncertainty Rating: Low

Morningstar Capital Allocation Rating: Standard

Industry: Utilities—Regulated Electric

OGE operates Oklahoma Gas & Electric and serves customers in Oklahoma and Arkansas.

In his report, Travis Miller writes, “OGE’s elimination of its midstream energy exposure along with improving regulation at its core Oklahoma electric utility puts it on track to produce more stable, growing earnings and dividends than it has in many years.”

Miller adds: “We forecast 6% average annual weather-normalized earnings growth for at least the next four years, in line with management’s growth target. Most of this is based on management’s plan to invest an average of $1.2 billion annually to expand and strengthen the electric grid. Industry-leading electricity demand growth is spurring the need for this investment.”

Gilead Sciences 

Fair Value Estimate: $97

Morningstar Rating: 5 stars

Morningstar Uncertainty Rating: Medium

Capital Allocation Rating: Standard

Industry: Drug Manufacturers—General

Gilead has committed to obtaining all the electricity used in its operations from renewable sources by 2025. As of 2022, 62% of its global electricity needs were met by renewable sources, including on-site generation from solar arrays. (The Morningstar index on which this story is based also includes companies that are heavy users of renewable energy.)

“Gilead Sciences generates stellar profit margins with its HIV and hepatitis C virus, or HCV, portfolio, which requires only a small salesforce and inexpensive manufacturing,” Morningstar strategist Karen Andersen writes in a report. In addition, Andersen notes that “Gilead markets several single-tablet regimens for HIV, and its next-generation products with better long-term safety profiles, led by Biktarvy, are boosting the company’s market share.”