High-Yield Renewable Energy Stock Battle Royale: Who Wins?

Should you buy Northland Power Inc. (TSX:NPI) or its two other peers for income and total returns?

| More on:
solar panels

Big dividend yields and stable contracted cash flow generation are general characteristics of renewable energy stocks. With the latest pullback, they are absolutely attractive income generators. Let’s explore Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP), Northland Power (TSX:NPI), and TransAlta Renewables (TSX:RNW) as potential ideas.

In the last 12 months, the group has underperformed the market in terms of price returns. That’s good news for income investors because the lower their stock prices go, the bigger their yields become, as long as they maintain their dividends.

RNW Chart

RNW data by YCharts. Last 12-month price action of TSX:BEP.UN, TSX:NPI, TSX:RNW, and the Canadian market, using TSX:XIU as a benchmark.

Here’s an overview of their businesses and scale.

The businesses

Brookfield Renewable has more than 17,000 MW of generating capacity with US$43 billion of assets under management across 10 countries in four continents. Its diversified portfolio is primarily comprised of 76% hydroelectric generation (218 facilities on 82 river systems) and 20% wind generation (more than 100 wind farms). It also has 55 solar facilities.

Northland Power has about 2,000 MW of generating capacity and more than 1,300 MW that are in advanced stages of development or are under construction. It has about 40% in thermal generation, 30% and 10%, respectively, in offshore and onshore wind generation, and 5% in solar. It has a growing presence in Canada, the United States, Mexico, Latin America, Europe, and Taiwan.

wind generation facility

TransAlta Renewables has interests in about 2,400 MW of generating capacity across 21 wind facilities, 13 hydroelectric facilities, seven natural gas generation facilities, and a solar facility. It has operations in Canada, the United States, and Australia.

Dividend safety

As of writing, Brookfield Renewable, Northland Power, and TransAlta Renewables offer yields of about 6.8%, 5.9%, and 8.8%, respectively.

In the first half of the year, Brookfield Renewable paid out about 84% of its funds from operations, but it aims to reduce the payout ratio to about 70% in the long run.

Northland Power’s free cash flow payout ratio in the last year was about 67%. TransAlta Renewables’s payout ratio based on cash available for distribution was 80% in the first half of the year. So, all three companies’ cash distributions should be sustainable.

Outperformance

The five-year annualized returns of Brookfield Renewable, Northland Power, and TransAlta Renewables are about 12%, 12.7%, and 8.1%, respectively.

Since late 2007, before the last market crash, Brookfield Renewable and Northland Power delivered annualized returns of about 10.4% and 8.8%, respectively. TransAlta Renewables was excluded from this comparison because it was only listed on the Toronto Stock Exchange in 2013.

Who wins?

In the limited historical data available, TransAlta Renewables underperformed the other two. Going forward, Brookfield Renewable and Northland Power will likely provide higher growth.

Since these renewable stocks are primarily income investments, investors may prefer the one with higher visibility in dividend growth, in which case it’d be Brookfield Renewable. This year will be its seventh consecutive year of dividend growth.

Given Brookfield Renewable’s leading global position and large-scale platform, income investors should be pleased with its stable 5-9% cash distribution growth per year by buying it for a juicy yield of 6.8% right now. At today’s attractive valuation, investors should also be delighted about the total-return prospects of a long-term investment.

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 Kay Ng owns shares of Brookfield Renewable Partners. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.

More on Dividend Stocks

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

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 »