The future of Canadian energy stocks is under the key themes of decarbonization and renewable energy. Alimentation Couche-Tard (TSX: ATD) and Brookfield Renewable Partners (TSX: BEP.UN) are wonderful businesses to invest in.
Alimentation Couche-Tard
The decarbonization trend has been supported by the long-term plan for net-zero emissions and initial government subsidies in electric vehicle (EV) purchases. Alimentation Couche-Tard has a stable and growing convenience store and roadside fuel business, which will remain relevant, as it has been investing in EV charging infrastructure.
Couche-Tard first started experimenting EV charging in Norway, where it is ahead in the EV conversion. The company rolled out the EV charging stations in Europe before extending the build out to United States. By 2024, it plans to deploy EV charging units to 200 of its Circle K and Couche-Tard stores in the United States and Canada.
The growth stock has a track record of delivering extraordinary total returns to its long-term shareholders. Since 2013, it has delivered total returns of roughly 22.9% per year, transforming an initial $10,000 investment to about $85,860. Since 2007, the return has been about 18.8% annually, turning an initial $10,000 investment into about $169,454.
The defensive business generates resilient and growing cash flows, which management reallocates for capital investment and dividend growth. For example, since 2012, Couche-Tard has increased its common stock dividend by 10-fold!
At $65.26 per share at writing, the analyst consensus view is that the stock trades at a slight discount of just over 11%. So, it’s not a bad idea to buy some shares here for investors with a long-term investment horizon.
Brookfield Renewable Partners
Brookfield Renewable Partners is a good stock to invest in for the growing renewable energy sector. It is one of the biggest publicly traded companies for renewable power and decarbonization solutions.
Importantly, the top utility stock offers a cash distribution that pays a yield of 4.6%, which serves as a solid base for total returns. Additionally, management is committed and able to increase the cash distribution by at least 5% per year. Its track record is solid with a 10-year cash-distribution growth rate of 5.7%. Its last hike was 5.5% in February.
Brookfield Renewable stock has a long growth runway. As a large player, it can select from global investment opportunities across projects in solar, distributed generation, storage, sustainable solutions, wind, and hydro. Its operational capacity is approximately 25 gigawatts (GW), and in its pipeline, it has about 110 GW.
This month, the company announced that it was acquiring Duke Energy Renewables, which would add 5,900 megawatts (MW) of operating and under construction assets as well as a 6,100-MW development pipeline. Similar to BEP’s existing profile, Duke Energy’s cash flows are 90% contracted with a weighted average 13-year remaining life. To help fund this acquisition, BEP raised gross proceeds of US$500 million on a bought deal basis from an equity offering, which is why we have a buy-the-dip opportunity today. At $38.74 per unit at writing, analysts believe the undervalued stock is a buy with a discount of about 20%.
Investor takeaway
Both stocks are trading at good valuations. Interested investors in the future of Canadian energy stocks can buy some shares today and aim to add to their positions over time for long-term investment.
