Renewable energy stocks are attractive investments, even though higher interest rates and concerns around tightening margins present short-term challenges.
The increasing global concern regarding climate change is driving a rapid shift towards clean energy solutions. This swift transition indicates a significant influx of investments into the renewable energy sector, focusing on developing infrastructure and improving power-generation capabilities to meet the growing demand.
The increased investments provide substantial growth opportunities for companies operating in the clean energy sector. Thus, investors can capitalize on the growing demand for renewables by investing in green energy companies to generate significant capital gains in the long term.
In addition to potential capital gains, investors stand to gain from the consistent dividend distributions offered by renewable energy firms. These companies benefit from long-term contractual arrangements that add stability to their cash flows and support their payouts. Against this backdrop, let’s explore two Canadian stocks to buy now on the TSX that will enable you to capitalize on the energy transition opportunities.
Brookfield Renewable Partners
Speaking of top renewable energy stocks, Brookfield Renewable Partners (TSX:BEP.UN) stands out as a no-brainer stock. Brookfield owns a highly diversified portfolio of renewable energy assets, encompassing wind, solar, and hydroelectric facilities. Moreover, this pure-play renewable energy company has substantial operational capacity and a development pipeline of about 150,000 megawatts. Further, about 55% of its pipeline is in the U.S. and will likely benefit from the Inflation Reduction Act.
Brookfield’s extensive energy marketing and operational capabilities and technologically diversified fleet position it well to capitalize on the demand for clean energy. Further, the company benefits from its highly contracted business and long-term power-purchase agreements. Additionally, most of its power-purchase agreements have protection against inflation.
It’s worth highlighting that about 90% of its power generation is contracted. Moreover, these agreements have a weighted average expiry term of 13 years. This allows Brookfield Renewable to generate high-quality cash flows to support its payouts and invest in growth opportunities. Besides organic growth, the company is expected to benefit from strategic acquisitions, enhancing its operational capabilities.
Thanks to its resilient business model and low operating costs, its funds from operations (FFO) have grown at an average rate of 10% annually in the past decade. The company raised its dividend by an average annualized growth rate of 6% during the same period. Brookfield Renewable Partners’s solid asset base, high-quality cash flows, and focus on enhancing its shareholders’ returns make it a top stock in the green energy space.
One could consider investing in the shares of Capital Power (TSX:CPX) to capitalize on the rising demand for clean energy. With 29 facilities contributing to its 7,500-megawatt operating capacity, this power producer boasts a well-diversified portfolio, including natural gas, wind, solar, and energy storage.
Moreover, Capital Power consistently generates strong earnings, which supports its growth measures, drives its dividend distributions, and supports its share price. For instance, Capital Power stock sports a five-year compound annual growth rate of 12.4%. At the same time, the company enhanced its shareholders’ returns by increasing its dividend by about 7% annually.
Looking ahead, Capital Power’s investment in renewable energy facilities and expansion of its energy storage and natural gas portfolio bodes well for growth. Also, the contractual arrangement with credit-worthy counterparties adds stability to its cash flows.
Overall, Capital Power is well-positioned to deliver healthy capital gains in the coming years. Moreover, it will likely enhance its shareholders’ value via higher dividend payouts.