Millennials: How to Get Big Gains and a Sustainable 7.4% Yield

Save the world and get rich with sustainable dividend plays like TransAlta Renewables Inc.(TSX:RNW).

| More on:
Top view of mixed race business team sitting at the table at loft office and working. Woman manager brings the document

Image source: Getty Images

ESG investing is all the rage with millennials.

Ethical businesses that leave a net positive impact on the environment are actually worth more through the eyes of investors who are looking to change the world with their investment dollars. That’s why renewable energy stocks are one of the best asset classes — not just for millennials who want to make a difference, but for those seeking to score a favourable risk/reward trade-off over the long term.

Governments around the world are actively pushing for renewable projects to be built, while energy projects reliant on fossil fuels will likely continue to face resistance in geographies that have decided to phase out “dirty” energy. There’s tremendous opportunity in the renewables space, and that’s a significant reason why non-renewable energy companies have been looking to get a slice of the pie.

Altius Minerals, a firm within the mining and resource sector, recently created a renewable energy subsidiary to take advantage of opportunities in the glowing space to improve its royalty stream for the better. And Amazon.com, the disruptor that knows no bounds, recently announced renewable energy projects in Virginia and Ireland.

Everybody wants to get in on the action. Renewable energy projects are where the puck is headed next and are capable of offering outsized returns on invested capital thanks to favourable industry conditions that’ll likely last many decades.

Since the renewable energy sector is riding on the right side of a secular trend, they tend to offer larger dividend yields, greater capital appreciation potential, and dividend growth.

Indeed, there are many perks to be had for investors looking to the sector. And if you can buy one at a reasonable price, all the better.

Consider TransAlta Renewables (TSX:RNW), a well-run renewable energy company with a massive 7.4% dividend yield at the time of writing. The stock recently slipped 10% after a strong start to the year thanks to the release of some weak Q2 2019 results.

Management reiterated its full-year guidance and will continue to aim for a generous 80-85% payout ratio after debt-repayment efforts. While the dividend may seem stretched, it appears safe given the trajectory of AFFOs and the potential for U.S. project acquisitions moving forward.

The stock trades at 10.7 times EV/EBITDA and 15.8 times forward earnings — a very reasonable price to pay for a stock that could deliver a trifecta of rewards (large upfront yield, dividend growth, and capital gains) for investors.

TransAlta Renewables is one of the most bountiful plays out there and is a top pick for those who want to save the world and get wealthy at the same time.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Fool contributor Joey Frenette has no position in any of the stocks mentioned. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon.

More on Dividend Stocks

financial freedom sign
Dividend Stocks

Million-Dollar TFSA: 1 Way to Achieve to 7-Figure Wealth

Achieving seven-figure TFSA wealth is doable with two large-cap, high-yield dividend stocks.

Read more »

analyze data
Dividend Stocks

How Much Will Manulife Financial Pay in Dividends This Year?

Manulife stock's dividend should be safe and the stock appears to be fairly valued.

Read more »

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Shopping card with boxes labelled REITs, ETFs, Bonds, Stocks
Dividend Stocks

Invest $10,000 in This Dividend Stock for $1,500.50 in Passive Income

If you have $10,000 to invest, then you likely want a core asset you can set and forget. Which is…

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »

potted green plant grows up in arrow shape
Dividend Stocks

TFSA Set and Forget: 2 Dividend-Growth Superstars for the Long Run

I'd look to buy and forget CN Rail (TSX:CNR) and another Canadian dividend-growth sensation for decades at a time.

Read more »