You Can’t Own Everything: Should You Buy This Income Stock?

With the stock market shooting up over the past couple of months, it is imperative to take an income-generating stance. Buying shares of Renewable energy utilities like Transalta Renewables Inc. (TSX:RNW) with its 6% yield is a great way to get your cash generation going. Should you buy shares of this company today?

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Will there be another crisis? Will stocks collapse? Should I sell my stocks or buy? All of these questions are going through all of our minds as we watch all the green on the screen. Stocks certainly don’t seem concerned. It is a bull market again, and investors are rushing to join the party.

The short answer is that, yes there will be another stock decline at some point in the future. It seems that every year or two there is an opportunity to add to your positions. If you made use of the recent downturn to buy quality dividend stocks when they were on sale, your plan should probably be to sit and wait unless you have something rather compelling to buy.

Everything is moving up

The problem is that everything is now moving up. There simply aren’t as many deals as there were a couple of months ago. Pipelines, banks, and even real estate have started to move after a bit of a sluggish start. 

At the moment, I’m pretty content to sit and wait for the most part. While I recently picked away at some real estate stocks, I have mostly been focused on just sitting and enjoying the ride back up.

In fact, if you have built up a decent holding over the past few months in dividend stocks, that is exactly what you should be doing right now.

Renewable utility stocks

Renewable energy stocks are great ways to collect those dividends. There are a few that could provide you with a decent yield and are still trading at reasonable prices. TransAlta Renewables Inc. (TSX:RNW) is one that might catch your eye.

It has a high yield that might help you build up cash flow as you wait for the next downturn to hit stock prices. But is it worth adding today?

Business prospects

TransAlta Renewables owns renewable assets such as wind, solar, and hydro as well as a natural gas business. Natural gas is considered to be clean enough to bridge the gap to renewable energy, so it fits well within the umbrella of a relatively environmentally friendly energy source.

The company owns facilities in Canada and the United States, which diversifies its earnings to a degree. It has 44 facilities across those regions. Its wind, solar, and natural gas facilities are 100% contracted with an average contract life of 7-11 years.

The solid contracts generate secure cash flows and visibility for dividends, reinvestment, and debt repayment.

Dividends

TranAlta Renewables has a yield of over 6% at the moment, which makes it pretty compelling as an income stock. The good news is that this yield is steady. Another good point is the fact that the dividend is most likely secure since the company has locked-in, long-term contracts supporting it.

The dividend has been held steady at $0.07833 a month for a few years now and should continue into the future.

Unfortunately for TransAlta Renewables, the dividend is not the only consideration. There are a number of companies I prefer to this one that I would rather purchase at the moment.

The bottom line

I am a big fan of utility companies for dividends and income. Renewables in particular have the potential for growth going forward. However, I would most likely not choose TransAlta Renewables at the moment.

The reason comes down to the fact that there are simply so many choices of utility companies and you can’t own them all. I simply prefer others to TransAlta Renewables right now.

I want to generate income while I wait for the next downturn. TransAlta Renewables has a nice absolute yield, but I wouldn’t choose it over other options in the sector.

For this reason, I will look elsewhere for income-generating utilities to build your cash pile while waiting for the next downturn.

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 Kris Knutson has no position in any of the stocks mentioned.

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