Passive-Income Powerhouses: 2 Value Stocks I Can’t Stop Buying

Dividend investors won’t regret accumulating shares of two value stocks that are also passive-income powerhouses.

Christopher Liew, CFA

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published May 17, 2023 6:45 pm EDT

If you’re an income investor, you’ll keep accumulating shares of Parkland (TSX: PKI) and Capital Power (TSX: CPX). Both value stocks are passive-income powerhouses for their dividend-growth streaks. The former has raised its dividends for 10 consecutive years, while the latter delighted investors with nine straight years of dividend hikes. Today, the average dividend yield is 4.53%.

The Dividend Aristocrats are must-buys this month following their impressive financial results in the first quarter (Q1) of 2023. Apart from rock-steady dividends, you can earn a substantial windfall from the potential price appreciation in one year.

Strong retail and commercial businesses

Parkland, a fast-growing independent fuel and petroleum supplier, has plenty of upside from an investment perspective. The $5.95 billion energy and retail company is also Canada’s second-largest convenience store operator. Current investors are up 14.1% year to date ($33.50 per share) and enjoy a 4.07% dividend.

The financial results in Q1 2023 reflect the stock’s steady performance. In the three months that ended March 31, 2023, sales and operating revenues increased 7.2% year over year to $8.15 billion. Notably, net earnings jumped 40% to $77 million versus Q1 2022.

Parkland’s president and chief executive officer (CEO) Bob Espey said, “Our performance this quarter demonstrates our ability to execute on our strategy, capture synergies and deliver organic growth throughout our retail and commercial businesses.” Management aspires to reduce leverage, improve shareholder returns, and hit $2 billion in adjusted earnings before interest, taxes, depreciation, and amortization by 2025. Espey said the goal is achievable even without acquisitions.

Engine Capital L.P., a minority owner (2%), said Parkland could be a pure-play fuel marketer and retailer if it sells or spins off its refinery. However, the possibility is remote after management rejects the suggestion. Espey said, “The Burnaby refinery is a highly strategic and integrated asset and approximately 90% of its output supplies Parkland customers.”

Espey added, “We reviewed several options, including a sale or spin-off and considered the impact of leverage and synergies. Following this detailed review, we concluded that Parkland should retain ownership of the refinery to maximize shareholder value at this time.”

Parkland has an extensive retail and commercial network (a total of 4,000 locations) in Canada, the United States, and the Caribbean. The company relies on its supply, distribution, and trading capabilities to accelerate growth, improve business performance, and sustain dividend payments.

Growth-oriented power producer

Capital Power deserves the buy rating from market analysts due to the superb operating and financial results. In the three months that ended March 31, 2023, the top (revenue) and bottom (net income) lines climbed 152.9% and 139.5% to $1.26 billion and $285 million versus Q1 2022.

The $5.44 billion growth-oriented wholesale power producer generated 7,417 gigawatt hours of electricity from 6,893 a year ago. If you invest today, CPX trades at $46.52 per share (+1.83% year to date) and pays an attractive 4.99% dividend.

Besides having a new CEO effective May 8, 2023, Capital Power signed a 23-year clean electricity supply agreement with Public Services and Procurement Canada. The Ontario Independent Electric System Operator (IESO) also granted CPX a six-year contract extension.