People invest for capital appreciation and to build retirement wealth, although others want to generate regular passive income streams. Earning $2,000 in monthly passive income sounds unbelievable but is achievable through dividend investing. However, the investment amount required to produce the desired income is considerable.
To make $2,000 in dividend income, the investment amount and rate of return must be $400,000 and 6%, respectively. If the rate is lower, say 4%, the upfront investment is $600,000.
High-yield TransAlta Renewables (TSX: RNW) pays monthly dividends on the TSX. Given the stock price ($11) and yield (8.19%), you only need to buy $293,040 worth of shares to arrive at $2,000 per month. Assuming your available funds is $41,350, and the stock price and yield remain constant, it will take 24 years to hit the objective.
Green investment
TransAlta Renewables generates contracted cash flows from long-term power purchase agreements. The $3 billion company has owned assets in Canada (wind, hydro, and gas) and economic interests in Australia (gas) and the United States (wind and solar).
In Canada, TransAlta Renewables is one of the largest wind power generators. The aggregate or combined gross installed capacity (owned assets and economic interests) is 2,993 MW. In 2022, revenue increased 19.1% to $560 million, although net earnings fell 47.1% year over year to $74 million.
Wind power is TransAlta’s largest renewable fleet, although volume is strongest in the first and fourth quarters. In the second and third quarters, hydro delivers a higher volume. Fortunately, net earnings in Q1 2023 rose 9.7% to $45 million versus Q1 2022, notwithstanding the underperformance of the Canadian wind fleet due to lower-than-normal wind conditions.
Its President, Todd Stack, said, “We remain on track to meet our 2023 guidance largely due to the performance of our diversified operating portfolio.” The Adjusted EBITDA target this year is between $495 million and $535 million compared to $487 million, while free cash flow could reach a high of $380 million versus $347 million last year.
Clean energy expansion
TransAlta plans to expand its existing assets to realize incremental growth in a competitive environment. The early-stage development projects in the three countries would add 685 MW after completion from 2025 to 2028.
Despite the effect of seasonal variations on business results, long-term contracts with strong counterparties should provide stable cash flow and consistent shareholder returns. Thus far, since the IPO, TransAlta has never missed paying a monthly dividend since September 13, 2013.
TransAlta believes that 2020 is a decade of massive clean energy expansion. The company is ready to invest in clean energy solutions and excited about its role in the transition.
Spread the risks
TransAlta Renewables attracts income investors because of its juicy dividends and consistent dividend history. However, building a dividend income portfolio instead of a single-stock investment is safer. You spread the risks through diversification or investing in a mix of companies.
Dividend investing ensures protection against price declines or fluctuations. Also, the power of compounding is at play when you reinvest the dividends. You can start small and add more shares as you go along. Money growth is slow, but you’d accomplish your objective of earning $2,000 in monthly passive income over time.
