For those of you with an RESP, TFSA, and RRSP, it can be hard to manage all three at the same time especially when each account holds shares of a multitude of companies.
This article is for the parents and grandparents out there that want to streamline RESP investments. The company that we will be focusing on today is Northland (TSX:NPI). Instead of investing in multiple companies that deliver lacklustre returns, I suggest putting a big chunk in Northland and riding the wave of profitability.
Northland operates power producing facilities and specializes in generating electricity from natural gas and renewable sources. Most of Northland Power’s power generation takes place in Canada.
The reason why it is such a good investment for an RESP is due to its dividend yield and potential for capital gains.
High dividend yield
When it comes to investing in an RESP, investors want the ability for investments to appreciate while having some certainty as to what future income will be.
Northland’s stock should abate investors’ worry due to its 4.532% dividend yield. Further, the $0.10 dividend is paid monthly! This means dividends that are reinvested grow the principal amount, which creates to the ability to purchase more shares that disburse more dividends.
With a dividend yield of 4.532%, investors benefit from a dividend comparable to bank stocks while also having the ability to achieve tech-industry capital gains.
Potential for capital gains
When I look at a potential investment, the two main features that I am concerned with are operating income and operating cash flows.
As the names suggest, both metrics are derived from the company’s operations which are its main line of business.
Operating income is income generated by the company prior to one-off charges such as acquisitions or sales of businesses. Northland’s operating income has increased from $209 million in fiscal 2014 to $701 million in fiscal 2018 for a strong compounded annual growth rate of 27.38%.
Its operating cash flows are also strong with an increase from $367 million in fiscal 2014 to $1.134 billion in fiscal 2018. A company that has both increasing operating income and increasing cash flows indicates adeptness on the part of management coupled with significant growth.
Summary
Investing through an RESP is a daunting task because your child’s future is on the line. I understand this, which is why I believe that Northland is a solid stock to buy and hold for several years.
Northland’s main revenues are derived from power production using natural gas and renewable energy sources – it has made investments in solar and wind power – so it will not be profoundly affected by the shift away from fossil fuels.
The company has a dividend yield of 4.532%, which is comparable to companies like Bank of Nova Scotia, giving investors a good idea of future income.
With an increasing operating income and operating cash flow, investors can also expect Northland to deliver significant capital gains. It is already up 20% since the beginning of the year and investors who buy in now can expect greater returns in the near future.
There are very few stocks that catch my eye like Northland has. If I were you, I would definitely invest in Northland.
