TransAlta Renewables Inc. (TSX:RNW) is looking like a hot commodity right now. With a bunch of value wiped off the energy sector recently, a value opportunity has arisen in the last few months. There has been an uptick in fortunes since then, but the high-yields on offer remain for the time being.
Seeing your stock nosedive in value is never fun, but for defensive investors, a sudden plunge creates a value opportunity. So, now let’s quickly compare two energy dividend stocks that still offer high yields thanks to the recent bad run and see why you should hold TransAlta — and possibly its competitor — for long-term gains.
Running low on energy? Compare these two high-powered stocks!
First, let’s take a look at one of TransAlta Renewables’s closest competitors.
Parkland Fuel Corp. (TSX:PKI) has a focus on crude oil and other fuel and petroleum products. It also runs its own sales channels, feeding into retail and commercial sectors. So far so good, as it’s clearly a stable and moderately diversified option.
Its share price is starting to climb, though. While this should not matter too much if you want a long-term defensive dividend stock pick from the energy sector, it does mean that the high yield that got you hooked is starting to narrow a little down to 3.69% from closer to 4% earlier in the year.
Now, let’s look at the star of the show here and see why TransAlta Renewables might be the better choice.
A falling share price in an undervalued market makes this a no-brainer
That’s right; TransAlta Renewables has a currently falling share price, which means that your high yield is still growing — for now. Sitting at a current yield of 7.83% and climbing, this is a stock to hold on to.
While recent profits have been lower than expected, the renewable energy market is tipped to take off in the foreseeable future. Its annual dividend payouts have grown year on year for the past four years, with this current year also shaping up to follow this growth trend.
But that’s not the only thing that gives TransAlta Renewables the edge over Parkland Fuel Corp. Unlike its competitor, TransAlta Renewables owns not only renewable energy assets, but also natural gas assets — both generation and infrastructure.
They both look tasty, but which is the better stock?
Let’s compare and contrast. Both companies were added to the S&P/TSX Canadian Dividend Aristocrats Index at the start of the year, meaning that you can be assured of a good track record in terms of growth.
They’re also both solid defensive plays, which is good news if you’re looking for a bit of peace of mind in your portfolio. And at discounted prices, you’re still getting a decent bang for your buck, whichever stock you opt for.
With wind, hydro, and gas operations in the Canadian market, TransAlta Renewables is nicely diversified — more so than Parkland Fuel Corp. Coupled with its greater yield, hungry acquisitions ethic, and growing value opportunity, TransAlta has the edge.
The bottom line
While there has been some slight recovery in the energy sector causing both stocks’ yields to dip a little in the last few weeks, both are still trading at lower prices than usual. While the received wisdom might be to hold out, TransAlta is a hot commodity worth snatching up. If that high yield excites you, then see if you can let it grow a while; otherwise, buy now for a long-term dividend stock that will see you proud.