The best time to invest in a new industry is usually in its early days. There are relatively fewer investors, and you can buy stocks from this industry at a favourable price (though not always). Once it starts attracting more retail and institutional investors, the stocks experience a significant boom.
If the sentiment around it is positive and market/economic forces remain healthy, a nascent industry can keep growing at a powerful pace for years before normalizing.
The renewable energy industry in Canada is well over that bull market phase, and many of the renewable energy stocks are currently going through a correction.
There is a decent probability that once this phase is over, the stocks may experience steady growth based on their fundamental strengths, in contrast to growth triggered and sustained by the initial hype and optimism.
A Quebec-based renewable energy company
Innergex Renewable Energy (TSX:INE) is an old renewable energy company that has been around for over three decades (since 1990). It was originally a hydroelectric power generation company, the classical renewable energy resource, but has now expanded its renewable energy portfolio to include solar and wind as well.
The largest segment of its current installed capacity (4.2 gigawatts or GW) is in Canada (about 46.7%). The rest is in the U.S., Chile, and France. This geographical diversification that comes from a presence on two continents is one of the company’s primary strengths.
The other strength is its steadily growing finances. The company carries a lot of debt, but this is a common theme in the renewable energy sector in Canada.
The stock has fallen about 69% from its 2020 peak, and even though the stock has shown some life in the past few days, it’s difficult to predict how far this bullish phase will take the stock.
But this discount, in addition to making the stock very attractive for value investors (despite the fact that it’s not undervalued per se), has pushed the yield up to a very attractive number: 7.3%. The payout ratio doesn’t paint an attractive sustainability “picture,” but the stock’s dividend history is solid.
A Toronto-based renewable energy company
If you are looking for an energy company with an even more comprehensive global presence, Brookfield Renewable Partners (TSX:BEP.UN) might be the right pick for you. It has a massive portfolio of renewable assets, with 32 GW installed/operational capacity and 132 GW in the pipeline.
The bulk of these assets are in North America, though a sizable portion is in three other regions: South America, Europe, and Asia Pacific.
The existing portfolio has a relatively balanced distribution of the three types of assets: hydro, wind, and solar.
However, the development portfolio leans quite heavily towards solar and storage. The stock is currently quite heavily discounted and is offering a decent 5.6% yield. Considering its past performance, the stock may also offer decent capital-appreciation potential once it gets past the current correction phase.
- We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Brookfield Renewable Partners made the list!
Foolish takeaway
Brookfield Renewable and Innergex are among the top stocks that the renewable energy industry in Canada has to offer, especially if you are planning on holding them long term. They are viable picks for their dividends and discounts now, and once the market conditions are right, they can also add a decent amount of growth to your portfolio.
