The increasing focus on decarbonization and the growing adoption of renewable energy suggests that the sector will witness a substantial increase in investments to boost capacity. This indicates that renewable energy stocks could deliver solid capital gains in the long term.
Besides capital gains, investors will likely benefit from solid dividend payouts of these companies. Notably, these companies have contract-based operations and have visibility over cash flows, which enable them to enhance their shareholders’ returns through regular dividend payments. With this backdrop, let’s look at two Canadian stocks to capitalize on the energy transition opportunities.
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Brookfield Renewable Partners
Brookfield Renewable Partners (TSX: BEP.UN) is a top stock in the renewable energy space. It owns a diversified portfolio of renewable power assets, encompassing wind, solar, and hydroelectric. Further, this pure-play renewable energy company has about 25,900 MW (megawatts) of operating capacity and 134,400 MW of the development pipeline.
Thanks to its high-quality asset base and long-term contracts, Brookfield Renewables Partners generates solid financials. This allows it to boost its shareholders’ returns through higher dividend payments. For instance, Brookfield Renewables Partners’s funds from operations (FFO) have grown at a compound annual growth rate (CAGR) of 10% in the past decade. Moreover, it increased its dividend at a CAGR of 6% during the same period.
Looking ahead, Brookfield Renewable Partners expects its FFO per share to increase by a CAGR of 10% through 2028, which will help it to grow its annual distributions at a healthy pace. The company’s diversified and long-life assets, long-term contractual arrangements, and low operating costs will drive its top and bottom lines and, in turn, its share price and dividends. Notably, Brookfield’s majority of the power output is contracted. Furthermore, these contracts have a long weighted average remaining life. This adds stability to its financials and makes it a dependable bet. Moreover, these contracts incorporate safeguards against inflation, facilitating the company’s organic growth.
In summary, the combination of long-term contracts, a robust development pipeline, and the annual addition of new capacity positions Brookfield Renewable Partners favourably for generating substantial funds from operations over the next decade. Further, Brookfield plans to deliver 12-15% returns annually to its shareholders in the long term, which is attractive and supports my bullish outlook.
Capital Power
Next up are the shares of Capital Power (TSX: CPX). This North American power producer owns 7,500 MW of power generation capacity at 29 facilities. Thanks to its diversified portfolio and solid asset base assets, Capital Power generates strong earnings, which drives its stock price higher and allows it to boost shareholders’ returns through higher dividend payments.
Capital Power stock has increased at a CAGR of 11% in the past five years. Moreover, it increased its dividend by a CAGR of 7% between 2013 and 2023. Further, it plans to grow its dividend by 6% annually through 2025.
The company continues to invest in wind, solar, energy storage, and natural gas. These will enable Capital Power to generate strong financials and boost shareholders’ value. Further, the long-term power-purchase agreements will add stability to its cash flows.
Overall, Capital Power Corporation, with its robust portfolio of power generation assets and focus on enhancing its shareholders’ returns, is an appealing investment in the renewable energy sector. Further, its solid dividend growth history and visibility over future payouts make it a compelling stock for income-focused investors.
