2 Energy Stocks Yielding 3-6% to Buy in May

Are you in search of a high-yielding energy stock? If so, TransAlta Renewables Inc. (TSX:RNW) and TransCanada Corporation (TSX:TRP)(NYSE:TRP) are calling your name.

| More on:

Buying and holding high-quality dividend stocks is the most powerful way to ratchet up the long-term returns of your portfolio. With this in mind, let’s take a look at two top dividend stocks from the energy sector that you could add to your portfolio today.

TransAlta Renewables Inc.

TransAlta Renewables Inc. (TSX:RNW) is one of the world’s largest owners and operators of clean energy infrastructure. As of March 31, it has ownership interests in 18 wind facilities, 13 hydroelectric facilities, eight natural gas–generation facilities, and one natural gas pipeline, which have a total generating capacity of over 2,600 megawatts and are located in Canada, the United States, and Australia.

TransAlta Renewables currently pays a monthly dividend of $0.07333 per share, equal to $0.88 per share on an annualized basis, and this gives it a yield of about 5.6% today.

On top of being a bonafide high yielder, TransAlta Renewables is quickly becoming a dividend-growth star. It has raised its annual dividend payment every year since its initial public offering in 2013, which puts its streak of annual dividend increases at three today. It has also stated that it will raise its dividend by 6-7% once its South Hedland Power Station in Western Australia is completed in the next couple of months, which would lead to 2017 marking the fourth consecutive year in which it has raised its annual dividend payment and also put it on pace for 2018 to mark the fifth consecutive year with an increase.

I think TransAlta Renewables is a great pick for dividend growth in 2019 and beyond as well. I think its very strong operational performance and its significant expansion potential, including the ~1,300 megawatts of potential drop down candidates from TransAlta Corporation, could allow its streak of annual dividend increases to easily continue into the 2020s.

TransCanada Corporation

TransCanada Corporation (TSX:TRP)(NYSE:TRP) is one of North America’s largest owners and operators of energy infrastructure. Its portfolio includes approximately 56,900 miles of natural gas pipelines, 2,700 miles of crude oil pipelines, natural gas storage facilities with approximately 653 billion cubic feet of capacity, and 16 power plants, which are located across Canada, the United States, and Mexico.

TransCanada currently pays a quarterly dividend of $0.625 per share, equal to $2.50 per share on an annualized basis, and this gives it a yield of about 3.9% today.

Like TransAlta Renewables, TransCanada has shown a dedication to growing its dividend, but it’s a proven star rather than an up and comer. It has raised its annual dividend payment for 16 consecutive years, and its 10.6% hike in February has it on pace for 2017 to mark the 17th consecutive year with an increase.

TransCanada is a top pick for dividend growth going forward too. It has a dividend-growth program in place that calls for annual dividend growth at the upper end of 8-10% through 2020, and I think its continued growth of comparable distributable cash flow, including its 25.5% year-over-year increase to $1.22 billion in the first quarter of 2017, and its organic growth initiatives, including its ~$23 billion worth of near-term projects, will allow it to complete this program and extend it into the late 2020s.

Which of these top energy stocks belongs in your portfolio?

I think TransAlta Renewables and TransCanada Corporation represent two of the best long-term investment opportunities in the energy sector, so take a closer look at each and strongly consider making one of them a core holding in your portfolio today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re 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, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »