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Why TransAlta Renewables Inc. (TSX:RNW) Should Be the Next Dividend Stock You Buy

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One of the reasons many financial advisors fear millennials just aren’t investing like their predecessors is the worry that they’re putting money towards unsavoury institutions.

As a millennial myself, it’s definitely something I like to consider when looking at my portfolio.

I mean granted, I’m a new mom. I need every single penny I can scratch together. When I started out my investment portfolio, I came to the Motley Fool Canada to find out how to make more money. Period.

Now that’s it’s been a while, I’m not considering what other investments are out there that would help me sleep better knowing I’m supporting companies that will create a better life for my children in the future.

Well, I found one. Not only that, but it looks like I’ve been missing out on an opportunity to be make some serious cash.

Not your average energy stock

Enter TransAlta Renewables Inc. (TSX:RNW).

This energy producer is the perfect opportunity for those looking to get into renewable energy, while still getting a cut of the gas industry.

Currently, the company owns and operates seven natural gas generation facilities and one natural gas pipeline, but it also has 21 wind facilities, 13 hydroelectric facilities and one solar facility. These facilities combined offer 2,421 megawatts of generating capacity that span from British Columbia through to New Brunswick, and into Wyoming, Massachusetts, and Minnesota. Oh, and down under in Western Australia.

This diversification is perfect if the world begins to edge away from gas and doubles down on renewable energy resources like wind, hydro, and solar. This of course makes the company a long-term investment.

Getting green

So TransAlta offers a green energy option for investors, but it’s not the only green you’ll be seeing.

In its most recent quarterly earnings report, the company announced revenue of $140 million, and earnings per share of $0.35. Its EBITDA was at $430 million, and it expects 2019 to be around the same. So overall, the company has a strong balance sheet that should help investors get on board.

Then there’s the company’s stable monthly dividend that currently sits at a yield of 6.78%. Over the last six years, TransAlta has had a steady increase in that dividend of 6% each year.


It’s not just investors like you and me that are getting on board with TransAlta. Brookfield Asset Management Inc. announced recently that the company would be investing $750 million in the power producer and nominating two directors to the company’s board.

Brookfield will have a 4.5% stake in TransAlta, with the option to increase that stake to about 9% if certain conditions come about. Through the deal, Brookfield can convert this investment into equity interest in the company’s hydro assets later on.

When this announcement hits the headlines, TransAlta’s stock shot up almost 4%, with the company boasting that it had hit its highest level since July of 2015, and giving the company a market value of $2.7 billion.

TransAlta will use the $350 million investment and its proceeds to advance its strategy to move from coal to gas generation, aiming to complete this by 2025. It’ll also use $250 million to buy back shares, which will be music to investors’ ears.

Bottom line

Since the beginning of 2019, shares are up about 42% at the time of writing. But as I’ve mentioned, as the company continues to expand and invest in renewable resources, and as the world gets on board, that number should hit sky high.

As it is, even during an oil and gas crisis, this stock should still do well. At about $14 per share at the time of writing, investors should be looking at the prices in 2017 around $17 and think it’ll be no time before those share prices will be reached again.

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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 Amy Legate-Wolfe has no position in any of the stocks mentioned.

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