This Top Renewables Dividend Stock Is Generating Top Returns -- and There’s More to Come

This Top Renewables Dividend Stock Is Generating Top Returns — and There’s More to Come

TransAlta Renewables Inc. (TSX:RNW) has rallied 30% so far this year and provides investors with more upside potential and a 7% dividend yield.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published March 29, 2019 4:16 pm EDT

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:

Dividend

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.

Quality assets

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.

TransAlta relationship

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.

Final thoughts

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.