Let me start off by stating the obvious.
It’s a good idea for investors to accumulate a position in renewable energy stocks, as this is a sector of the future.
A sector that, unlike the oil and gas sector, has an extremely long-term runway. This sector is focused on clean energy solutions that will drive governments and investors decisions for as far as we can see and more.
So, without further ado, let’s look at a top renewables dividend stock that is generating top returns and can be expected to continue to do so for a very long time.
TransAlta Renewables Inc. (TSX:RNW)
With 18 wind facilities across Canada and the U.S., TransAlta Renewables is Canada’s largest wind power generator.
Here are the main reasons to own this dividend stock:
TransAlta Renewables is a strong renewables energy provider, with a dividend yield of 7%.
The stock has a year-to-date return of 30%, as the company has posted better-than-expected results and 2019 guidance and as investors flocked to it for its yield, which hit as hit as 9% back in 2018.
Since its IPO in 2013, the company has grown its dividends at a 6% compound annual growth rate, and it continues to provide one of the highest dividend yields in the renewables sector.
Furthermore, the 80% to 90% payout ratio contributes to TransAlta Renewables sustainability.
Its diversified portfolio consists of wind, natural gas, and hydro power facilities, with wind power accounting for 49% of the company’s cash flow generate, with an average term of 15 years remaining in the company’s long-term power purchase agreements (PPAs).
Furthermore, many of the PPAs are partially indexed to inflation.
Going forward, the company will continue to see growth and support from its strategic relationship with TransAlta Corp. (TSX:TA)(NYSE:TAC), which owns 61% of TransAlta, and lends its evaluation, identification and execution expertise to TransAlta Renewables.
As such, the company has good access to growth capital and will see more drop-down transactions and third-party acquisitions from TA, which should support dividend growth well into the future.
Strong cash flows
In the last three years, the company’s cash flow per share has grown 24% to the current $1.47, which has made possible the corresponding 16% dividend increase.
With its attractive dividend yield, TransAlta Renewables stock offers investors reliable dividend income that is supported by quality assets, and upside from its strategic relationship with TransAlta.
Adding TransAlta Renewables stock to your holdings gives you exposure to the long-term secular growth of the renewables industry along with this top dividend yield.
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 Karen Thomas has no position in any of the stocks mentioned.