How to Boost Your Passive Income by 5%

Why income investors should give TransAlta Renewables Inc. (TSX:RNW) a gander.

| More on:

Who among us can’t use a 5% boost to their income? This piece will assume that you’re not already an income-oriented investor with a yield that’s close to the 2% average yield of the broader indices. To command a 5% boost, you’ll need securities that have a minimum yield of 7%.

With a yield of 6.7%, TransAlta Renewables (TSX:RNW) is one of the more generous income plays in the “sexy” renewable energy industry.

The renewable sector, TransAlta Renewables, in particular, has been roaring loud this year. Year to date, TransAlta Renewables is up a whopping 35%, and while the opportunity to bag a yield that’s north of 8% is now out the window, I still think long-term investors have a chance to pay a nickel to get a dime so to speak at $14 and change.

Back in January, when TransAlta Renewables sported a massive 8.31% yield, I told investors that they had a chance to have their cake (a huge dividend) and the ability to eat it too (massive capital gains potential).

At the time, the markets were just shaking off the damage endured in one of the worst Decembers in recent memory. Plenty of stocks had their bear market moment, but TransAlta Renewables was a name that was among the most hit, with shares getting pummelled around 40% from peak to trough. It was tough to bite on the name back then, but if you had to courage to step in with a contrarian position, you locked in an 8.3% dividend yield and plenty of gains to go with it in just a few months.

With a pipeline full of encouraging green projects, TransAlta Renewables still has a ton of room to run. And as the ESG trend continues rolling on, I expect that TransAlta Renewables will continue delivering outsized returns to investors, both in the form of dividend hikes and capital gains.

Despite the big 2019 rally, TransAlta Renewables still trades at a modest 16.1 times next year’s expected earnings and 1.6 times book. That’s pretty darn cheap, so don’t feel as though you missed out on the easy money just because shares at trading at 52-week highs.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

A worker drinks out of a mug in an office.
Dividend Stocks

A Dividend Giant I’d Buy Over BCE Stock Right Now

The largest telecom company in Canada is brutally discounted, and the dividend yield is naturally up, but it's too risky…

Read more »

a man celebrates his good fortune with a disco ball and confetti
Dividend Stocks

Get Ready to Invest $7,000 in This Dividend Stock for New Year Passive Income

This is the year you get ahead, and maxing out your TFSA contribution is the best way to start.

Read more »

ways to boost income
Dividend Stocks

Buy 2,653 Shares of This Top Dividend Stock for $10K in Annual Passive Income

Enbridge is a blue-chip TSX dividend stock that offers shareholders a forward yield of 6%. Is it still a good…

Read more »

Blocks conceptualizing the Registered Retirement Savings Plan
Dividend Stocks

CPP at 70: Is it Enough if Invested in an RRSP?

Even if you wait to take out CPP at 70, it's simply not going to cut it during retirement. Which…

Read more »

a person looks out a window into a cityscape
Dividend Stocks

1 Marvellous Canadian Dividend Stock Down 11% to Buy and Hold Immediately

Buying up this dividend stock while it's down isn't just a smart move, it could make you even more passive…

Read more »

happy woman throws cash
Dividend Stocks

Step Aside, Side Jobs! Earn Cash Every Month by Investing in These Stocks

Here are two of the best Canadian monthly dividend stocks you can consider buying in December 2024 and holding for…

Read more »

chip with the letters "AI" on it
Dividend Stocks

The Top Canadian AI Stocks to Buy for 2025

AI stocks are certainly strong companies, and there are steady gainers in Canada as well. But these three are the…

Read more »

calculate and analyze stock
Dividend Stocks

2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These stocks pay attractive dividends for investors seeking passive income.

Read more »