Many people think investing in solar companies is a good idea. And we tend to agree that a solar investment in the right idea and/or business is a good choice.
But the number one question we hear is how to invest in solar energy for attractive returns?
The best way to make money in the stock market is to invest in high quality companies that are leaders in undeniable megatrends and hold them for long periods of time. Decades if you can. Think Google for internet searches, or Amazon for online shopping, or Intuitive Surgical for robotic surgeries.
Solar energy is growing rapidly because compared to the production and use of fossil fuels, solar energy is so much better for the environment. It is a renewable and clean energy resource that people feel good about using.
For all these reasons, the use of renewable energy sources like solar energy is here to stay and its use will only increase. That is why you have seen such momentum behind the impact investing trend. For the most part, that trend is just getting started.
Historically the biggest negative about solar energy was the cost, but technical advances in solar panels have made the cost of solar energy much more competitive vs tradition fossil fuels in recent years. Combined with the impact it has on the environment, a social investment can make for a solid Social Return on Investment.
The most conservative solar investment you can make is not one of the solar energy stocks. For the most conservative solar investment we recommend you install solar panels on the roof of your house to lower your use of traditional fossil fuels to heat it.
Prices vary based on your location and house size, but rough estimate to install solar panels in an “average house” is in the $20,000 range. This can be reduced by 22% in 2021 through a federal tax credit you can receive from the federal government on your tax return.
On your $16,000 net investment ($20,000 less the tax credit) you can expect to get an eight-year payback on your investment from the savings on your electric bill. Although this is not a tremendous investment payback you will sleep better at night knowing that you are helping the environment by using renewable energy sources.
The other consideration about solar panels is how long you plan to stay in your home. The longer you plan to stay in your home, the more this kind of investment makes sense.
It has a stellar track record of strong cash flow and a top-notch balance sheet. They generate approximately 20%+ of their electricity from solar sources and that percentage will be increasing in the future.
These factors make NextEra Energy (NEE) a great conservative solar stock.
Utilities are here to stay and NextEra Energy’s focus on renewable energy like solar is taking advantage of a megatrend that is likely to last for many years given the shift away from fossil fuels.
This makes NextEra Energy a very profitable and growing company within a very secure and growing industry.
NextEra Energy current dividend yield is approximately 2% based on the current stock price, but tends to get increased 8% to 10% on an annual basis. The dividend is easily paid out of current year profits.
For a more aggressive solar investment, we considered recommending a solar energy ETF, but the problem with ETFs and mutual funds is you sometimes get the good stocks thrown in with the bad and we could not find a solar ETF or mutual fund with a good enough track record.
So if you have invested enough in your home solar system and NextEra Energy and still have some investing funds left over for a more aggressive solar stock, take a look at SolarEdge Technologies (ticker SEDG).
Solar Edge Technologies is a substantial company with $1.5 billion in revenues in 2020 and a market capitalization of about $14 billion.
They make optimizers for solar panels that make the panels generate more power at a low cost.
If you believe as we do that solar energy is a megatrend that will be with us for the rest of our lives, then look for an industry leader like Solar Edge to ride the wave of this renewable energy.
Although we believe in Solar Edge for the long term, this is a more aggressive stock then Next Era Energy because the company’s continued success rides on it being able to continue making their products cheaper and more effective.
In Summary:
Solar energy is part of the renewable energy megatrend that is here to stay and will thrive in the future.
Renewable energies like solar and wind make so much sense compared to fossil fuels that are so damaging to the environment.
Given that solar energy is not a fad, think about how conservative vs aggressive kind of investor you are and consider the three recommendations we made above as to which one(s) are right for you.
And remember to be a long-term investor. The best way to real wealth in the stock market is to buy stock in high quality businesses that are leaders in up-and-coming trends and hold them for the long-term.
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