power plug(NASDAQ:PLUG) and NextEra Energy(NYSE: NEE) They are two sides of the same coin of the “green wave.” Both companies represent a long-term commitment to the transition from fossil fuels to renewable energies.
However, while Plug Power is one of the most followed speculative growth stocks, NextEra is more of a “slow and steady” type of blue-chip play. Many income-focused investors also consider NextEra one of the best renewable energy dividend stocks.
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When it comes to choosing one of these renewable energy stocks over the other, you may ask yourself, “Why not both?” After all, in a scenario where the world transitions to net-zero energy, both companies will benefit, right?
Maybe, maybe not. For one thing, while one of these companies has a growth catalyst completely unrelated to the green wave, the bullish case for the other company depends on a particular type of renewable energy gaining critical mass.
Second, while one of these companies has a long-standing problem with cash burn and share dilution, the other has a much surer path to higher prices, not to mention a solid track record of earnings and dividend growth.
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Plug Power stock has seen rollercoaster price action in recent years. In the early 2020s, when Biden administration-era energy policy changes suggested significant growth for hydrogen stocks, shares were trading at split-adjusted prices above $40 per share.
However, between failing to meet high expectations and macroeconomic and political changes that affected the adoption of “green hydrogen,” or hydrogen energy generated from renewable sources, Plug Power experienced a price drop of more than 98%.
However, more recently, Plug Power has embarked on a comeback. Shares have risen from as low as $0.69 per share last May to just over $3 per share today. Chalk this up to a series of bullish developments, including the recent announcement of better-than-expected quarterly results.
One factor driving these improved results is the company’s move away from “green hydrogen” and its return to being a supplier of hydrogen energy products, such as electrolyzers and hydrogen-powered material handling equipment.
Management is now confident that Plug Power will turn positive revenue this year and become generally accepted accounting principles (GAAP) profitable by 2028.
However, uncertainty remains high. For one, Plug Power has a history of making promises that it ultimately fails to keep. For example, in 2021, management touted Plug Power as a $1 billion business by 2025. Last year, revenue was about $710 million, and the company reported a net loss of about $1.7 billion.
Additionally, while Plug could grow in the coming years, share dilution may limit the extent to which this positively impacts Plug’s share price. Plug Power will likely need to raise additional cash to fund growth and cover near-term operating losses.
In February, shareholders approved a plan to increase the company’s number of authorized shares from 1.5 billion to 3 billion shares outstanding. While not certain, this suggests management could be considering another dilutive capital raise.
Among old-school utility stocks, NextEra has benefited greatly from the renewable energy revolution. The Juno Beach, Florida-based company, parent of Florida Power & Light, has invested billions in renewable energy projects. As a result of its forward-thinking approach to renewable energy, investors have typically valued the utility at a premium to its peers.
But while NextEra plunged, as “green wave” optimism took a breather from 2022 to 2024, NextEra has acquired an additional growth catalyst. That is, NextEra benefited from the growing demand for electricity, driven by the proliferation of artificial intelligence (AI) data centers. Make no mistake: The AI catalyst will not create exponential growth for NextEra, as a “green hydrogen” boom might for Plug Power.
However, this growth could still pave the way for a strong total return for this stock. Management anticipates NextEra’s earnings will grow about 8% annually over the next decade, in line with past growth rates. This should help the stock maintain its valuation of 23 times forward earnings, with shares rising in line with earnings growth.
In the long term, NextEra’s dividend earnings, if reinvested, could significantly increase total returns. NextEra has a forward dividend yield of almost 2.75%. Having increased its dividend for each of the last 32 years, NextEra is less than two decades away from becoming one of the Dividend Kings, or companies that have increased their dividends for 50 years or more. Dividend growth has averaged just over 10% over the past five years.
Plug Power may appear to have tremendous turnaround potential, but execution and dilution risk remains high. NextEra Energy, on the other hand, may not “go to the moon” if the stars align perfectly, but even if the situation simply turns out as expected, the stock could deliver strong gains over a long period of time.
For individual investors, where time in the market matters more than market timing, Next Era is clearly the stronger option.
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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions and recommends NextEra Energy. The Motley Fool has a disclosure policy.
Best Power Stock: PlugPower vs. NextEra Energy was originally published by The Motley Fool
