When it comes to creating passive income, investors are likely looking for the best deal and the best yield. Yet, if you’ve been reading Motley Fool for a while, it should be clear that long-term investing is likely the best way to create a lot of passive income.
That’s because investors need to look beyond dividend income. Instead, think about returns and dividends, which combined create your total passive income.
What’s more, thinking long term can expose you to industries that are set to soar — ones that, unfortunately for them, aren’t exactly doing well these days. However, that’s great news for those of us looking for a deal. This is why I would consider renewable energy stocks Brookfield Renewable Partners (TSX: BEP.UN) and Northland Power (TSX: NPI) for future income. But which is better?
Brookfield stock
Both BEP stock and NPI stock have the benefit of being in the expanding renewable energy sector. This sector will continue to see demand in the decades to come. However, there will be a lot of pressure put on these companies in the meantime. And it will come down to which can stay strong and not buckle under that pressure.
That’s where BEP stock might have the advantage. The company has global diversification in renewable energy projects across continents. This includes hydro, wind, solar, and even storage and nuclear power. This diversification helps the company mitigate risks, including specific geographic issues such as droughts.
BEP stock also has a history of consistent growth through acquisitions and organic project development. In fact, analysts believe that there is a higher future growth for the company compared to NPI stock. This comes from the stocks’ overall stability from its size and diversification, with more liquidity than NPI stock.
That being said, the company holds a lower dividend yield right now, investing a larger portion of its profits for growth. Furthermore, BEP stock has a complex corporate structure with multiple entities. This can make it challenging when trying to understand the company’s true value.
NPI stock
As for NPI stock, the company’s main benefit off the hop is its high dividend yield. NPI stock prioritizes returning cash to its shareholders through dividends rather than growing at a fast clip. This can certainly make it attractive for investors seeking dividend income first and foremost.
What’s more, the structure is far more simple than BEP stock. This can help when valuing the stock. And while trading at 1.33 times book value and 2.38 times sales, it does look valuable. However, its profit margin of 7.85% looks a bit more risky, though its payout ratio of 77% looks stable for dividend seekers.
Beyond that, NPI stock doesn’t have as much liquidity and diversification as BEP stock, with a larger focus on North America and Canada in particular. This concentration can be risky as well as offering lower growth potential.
Bottom line
If you’re seeking a company that looks more likely to deliver on returns in the years to come, with a decent dividend on the way, BEP stock is likely your best option. However, if you’re looking to get paid right away month after month, then NPI stock is a great option. However, your overall returns are likely to be lower for long-term holders.
