Canadian investors are turning to monthly dividend stocks for income, because savings accounts, GICs, and bonds simply don’t offer yields anywhere close to what can be earned in the stock market. With this in mind, let’s take a closer look at why TransAlta Renewables Inc. (TSX:RNW) and Morguard Real Estate Inv. (TSX:MRT.UN) should be on your buy list today. TransAlta Renewables Inc. TransAlta is one of the world’s largest owners and operators of clean energy infrastructure. Its portfolio consists of 40 facilities, including 18 wind power-generation facilities, 13 hydroelectric facilities, eight gas-fired power-generation facilities, and one natural gas pipeline, which are…
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Canadian investors are turning to monthly dividend stocks for income, because savings accounts, GICs, and bonds simply don’t offer yields anywhere close to what can be earned in the stock market.
TransAlta Renewables Inc.
TransAlta is one of the world’s largest owners and operators of clean energy infrastructure. Its portfolio consists of 40 facilities, including 18 wind power-generation facilities, 13 hydroelectric facilities, eight gas-fired power-generation facilities, and one natural gas pipeline, which are located across Canada, the United States, and Australia.
TransAlta’s assets are supported by long-term contracts with high-quality counterparties, including the Ontario Power Authority, BC Hydro, Horizon Power, and Hydro Quebec, which results in stable and predictable cash flow, the majority of which is returned to its shareholders in the form of monthly dividend payments.
The company currently pays a monthly dividend of $0.07333 per share, representing $0.88 per share on an annualized basis, which gives its stock a whopping 6.15% yield at today’s levels.
As Foolish investors, we know we must always confirm the safety of a stock’s dividend before investing, and this is very easy to do with TransAlta, because it provides a cash flow metric called “cash available for distribution (CAFD)” in its earnings reports. In the first half of 2016, its comparable CAFD totaled $0.54 per share, and its dividend payments totaled just $0.44 per share, resulting in an 81.5% payout ratio, which is within its target range of 80-85%.
On top of its high and safe dividend yield, TransAlta offers dividend growth. It has raised its annual dividend payment each of the last two years, and its recent hikes, including its 4.8% hike in January, have it on pace for 2016 to mark the third consecutive year with an increase. It has also stated that it will raise its dividend by another 6-7% once it commissions its South Hedland Power Station in mid-2017, which means its streak of annual dividend increases will continue in both 2017 and 2018.
As mentioned previously, TransAlta has a target payout range of 80-85% of its CAFD, so I think its consistently strong growth as a result of its growing asset base, including its 5.9% year-over-year increase to $0.54 per share in the first half of 2016, will allow its streak of annual dividend increases to continue through 2020 at least, making it one of the best dividend-growth plays in the energy sector today.
Morguard Real Estate Investment Trust
Morguard is one of Canada’s largest diversified real estate investment trusts (REIT). It owns and operates 49 commercial properties, including 23 office properties, 21 retail properties, and five industrial properties, comprising of approximately 8.72 million square feet of gross leasable area located across six provinces.
Morguard’s property portfolio currently sports a 97% occupancy rate and has high-quality tenants that include Shoppers Drug Mart, Dollarama, the province of British Columbia, and Diageo, which provide it with stable cash flow and allow it to safely pay monthly distributions to its shareholders.
Morguard pays a monthly distribution of $0.08 per unit, representing $0.96 per unit on an annualized basis, and this gives its stock a lavish 6.15% yield.
As mentioned before, it’s very important to always check the safety of a stock’s distribution before investing, and you can do this with Morguard by checking its cash flow. In the first half of 2016, its adjusted funds from operations (AFFO) totaled $0.62 per unit, and its distributions totaled just $0.48 per unit, resulting in a conservative 77.4% payout ratio.
Morguard is also a very reliable income provider. It has maintained its current monthly distribution rate since March 2012, and I think its consistent AFFO generation, including $1.28 per unit in fiscal 2015 and $0.62 per unit in the first half of 2016, will allow it to continue to do so for another four years at least.
Is one a better buy?
TransAlta Renewables and Morguard REIT both represent very attractive long-term investment opportunities today, but if I had to choose just one, I’d go with TransAlta because it has the added benefit of dividend growth.
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Fool contributor Joseph Solitro has no position in any stocks mentioned.