Tax-Free Savings Accounts (TFSAs) remain one of the best-kept secrets for investors looking to maximize their savings today for a comfortable tomorrow. While TFSAs aren’t exactly a secret, many investors tend to overlook the incredible value that these savings vehicles offer over the long term, particularly if the right investments are added to the TFSA.
One such investment that warrants a discussion is TransAlta Renewables (TSX:RNW).
What makes TransAlta unique?
For those that are unaware of TransAlta, the company owns or operates over 30 renewable energy facilities that are located across 10 operating regions in the U.S., Canada, and Australia. Those facilities include wind, hydro, solar and natural gas elements, which collectively provide over 2,400 MW of generating capacity.
Apart from the geographically diverse advantage that comes from operating across multiple regions, TransAlta boasts three other key talking points worth mentioning.
First, there’s the utility aspect. Utilities are some of the most defensive options available to investors on the market. Power is something that we take for granted, and utilities are bound to maintain that stability through long-term contracts known as power-purchase agreements (PPAs).
In short, PPAs stipulate how much power the utility needs to provide, the duration of the contract, and how much the utility will be compensated for providing that service. In the case of TransAlta, more than two-thirds of its facilities carry a PPA expiration date of a decade or more out from now.
This translates into a steady stream of recurring revenue for TransAlta, which leads to my next point about dividends.
Like its fossil fuel-burning peers, TransAlta boasts a solid (and sustainable) dividend. The company currently offers an attractive 5.30% yield, which handily puts TransAlta in a league far above its peers. Adding to that appeal is the fact that TransAlta’s dividend is paid out monthly, which could prove to be a gamechanger for some investors.
Finally, let’s take a moment to talk about the renewable aspect itself. There is a growing global responsibility to shift towards renewable power sources and reduce, if not eliminate, our reliance on fossil fuels. For the well-established utilities out there, that growing need translates into a massive multi-billion-dollar capital investment that could take years to materialize. During that transition, those massive costs could potentially hit shareholders in the form of stagnant dividend growth.
Contrast that to TransAlta, where the company already boasts a renewable energy portfolio that continues to grow. By way of example, last month, TransAlta announced two new wind farms that came online over the holidays, adding nearly 120 MW in generating capacity. Both of the wind farms are in the U.S. and are subject to 15-year and 20-year PPAs.
Final thoughts
Renewable energy stocks are great long-term investments that carry all of the advantages that their traditional fossil fuel-burning peers carry, and much more. As the global market continues to embrace the threat of climate change and the need to shift towards renewable energy, the appeal of an investment like TransAlta is only going to grow.
Prospective investors only need to see the impressive 49% growth of the stock over the past year to illustrate that point. Incredibly, despite those incredible gains, TransAlta still trades at an attractive level, with a P/E of just 21.28.
Buy it, hold it, and get rich.
