Create a Pension Passive-Income Stream With This TSX Stock

Brookfield Renewable is a cheap dividend stock that can help you generate a passive stream of income in the upcoming decade.

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The average CPP (Canada Pension Plan) payment for a 65-year-old Canadian beginning these payouts is $831.92, while the maximum payment is $1,364.60 in 2024. So, we can see that Canadians need to supplement their pension plans with other passive-income streams.

You can create a passive-income stream at a low cost by investing in Guaranteed Investment Certificates (GICs) or dividend stocks. While the Bank of Canada has lowered its interest rates by 25 basis points, several banks still offer a 5% yield on products such as GICs.

GICs allow you to deposit a certain amount with a bank or a financial institution and earn interest on the amount. In addition to regular interest payments the bank will pay you the principal amount on maturity. Similar to other fixed-income products, GICs are ideal for investors with a low-risk appetite. Moreover, a 5% yield will help you generate wealth, given inflation in 2024 has cooled off to less than 3%.

Alternatively, investors with a higher risk appetite can consider investing in undervalued dividend-growth stocks that offer a tasty yield. In addition to steady dividend income, investors are positioned to benefit from long-term capital gains.

One such TSX dividend stock is Brookfield Renewable Partners (TSX:BEP.UN), which trades 44% below all-time highs and offers shareholders a dividend yield of 5.5%, which is higher than most GICs.

Brookfield Renewable is part of the AI megatrend

Brookfield Renewable is a diversified clean energy company valued at $23 billion by market cap. It expects accelerating global trends such as cloud computing, digitalization, and the adoption of AI (artificial intelligence) to drive power demand higher in the upcoming decade. In fact, Brookfield Renewable is a key enabler of this significant growth trend as companies continue to increase capital budgets to fund cloud and AI infrastructure growth.

Brookfield Renewable recently inked a landmark renewable energy framework agreement with Microsoft, one of the largest players in the AI segment. BEP expects to deliver 10.5 gigawatts of new renewable energy capacity to Microsoft in the U.S. and Europe between 2026 and 2030. Investors should note that 10.5 gigawatts can power close to eight million homes, and the deal will be a key driver of earnings growth for Brookfield in 2026 and beyond.

Is Brookfield Renewable a good stock to buy now?

In the first quarter (Q1) of 2024, Brookfield Renewable reported a funds flow from operations of US$296 million or US$0.45 per share, an increase of 8% year over year. The company expects to grow its FFO by 10% in 2024 despite a sluggish macro environment.

It ended Q1 with US$4.4 billion in total liquidity, which allowed it to deploy significant capital into growth projects and acquisitions.

Brookfield Renewable stock has returned more than 1,500% to shareholders since June 2004 after adjusting for dividends. By leveraging its funding sources and operational capabilities, it expects to deliver annual returns between 12% and 15% to long-term shareholders.

Analysts remain bullish on BEP stock and expect it to surge 17% in the next 12 months. After accounting for dividends total returns could be closer to 22%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners and Microsoft. The Motley Fool has a disclosure policy.

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