Renewable-power stalwart Brookfield Renewable Partners (NYSE:BEP) has a dividend yield of 3.2%, near the lowest levels in the partnership’s history. Other prominent names in the space have even lower dividend yields. France’s TotalEnergies (NYSE:TTE) has a 7.3% yield. And while some may argue that it’s an oil stock, TotalEnergies has a long history in renewable power with even bigger plans for the future. Dividend-focused investors like myself would do well to take a close look.
The really important goal
Stating the obvious right up front, TotalEnergies has a long history behind it as one of the world’s largest integrated oil majors. Moreover, its results are still tied tightly to the ups and downs of the oil and natural gas markets. But there’s an important shift in the works. In fact, the change is so big that the company changed its name from just Total to TotalEnergies to highlight its clean-energy aspirations.
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The current goal is to grow the “electrons” division from 5% of the company to 15% by 2030. Before pooh-poohing that goal, step back and look at the bigger picture here. TotalEnergies is basically looking to triple the size of its clean energy business in about one decade. The company has a $110 billion market cap, so that’s no small effort. For comparison, Brookfield Renewable Partners’ market cap is roughly $11 billion. Put simply, TotalEnergies’ plan is likely to put it among the largest players in the clean-energy space.
But this isn’t some bright new idea that management cooked up to appease investors. It has been working in the renewable arena for some time. For example, it bought a stake in SunPowerroughly a decade ago. And it has continued to invest in the space in the years since, including some pretty sizable deals. Total is even willing to speed up its planned pace if that is what the broader world wants, based on recent comments from management. This is, perhaps, even more telling than the company’s 15% target mentioned above, because it makes clear that TotalEnergies wants to change with society to be a key energy provider, in whatever form that requires.
The old builds the new
This is why TotalEnergies isn’t simply abandoning its carbon fuels business. The world still needs and wants oil and natural gas. Even in the most aggressive clean-energy scenarios, these fuels remain important to the global energy mix for decades to come. TotalEnergies has a long and successful history in the space, so it might as well continue to participate. That said, it intends to shift toward cleaner-burning natural gas, limiting its oil investments to only its best opportunities.
BEP Dividend Yield data by YCharts
This, however, is important. The oil and gas business, though volatile, can be highly profitable. For example, the energy giant generated a huge $13.1 billion in cash flow in the first half of 2021. Obviously a good chunk of that is earmarked for the dividend and investment in the carbon fuels business. However, the goal is to earmark around 15% of the company’s capital spending budget to clean energy between 2021 and 2025, but not less than $2 billion a year. Think back to Brookfield Renewable Power — in five years TotalEnergies’ capital spending plans will roughly approximate the size of the master limited partnership.
Most of that money is going to be provided by the cash-cow carbon business. So by providing an energy source the world still needs, TotalEnergies is funding its repositioning effort. That sounds like a win-win to me, especially since I get to collect a huge 7% dividend along the way.
Not pure, but definitely compelling
If you’re looking for a focused clean-energy stock, TotalEnergies probably won’t interest you. However, if you take a realistic look at the world, which is still only working toward a clean-energy transition, the oil giant looks to be positioning itself for long-term success as the energy landscape shifts. That’s a business decision that still sounds rock solid to me, and I’m happy to own the stock today.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.