When considering a renewable energy stock for investment on the TSX in 2025, Canadian investors should approach the decision with a strategic mindset. The renewable energy sector continues to evolve, shaped by government policies, technological advancements, and shifting market dynamics. While the industry presents significant long-term growth potential, not all renewable energy stocks are created equal. Investors should evaluate these stocks based on key financial and operational metrics, long-term business strategy, and their ability to generate sustainable returns.
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What to watch from these two contenders
The first major consideration is the company’s energy portfolio. Renewable energy stocks operate in different segments, including wind, solar, hydro, and biomass energy. A well-diversified portfolio reduces risk by ensuring that the company’s revenue isn’t overly dependent on one specific energy source. Brookfield Renewable Partners (TSX: BEP.UN), for example, has a global footprint spanning hydroelectric, wind, and solar power assets, providing it with a balanced approach to energy production. By contrast, some energy stocks may focus heavily on a single energy source, leaving them vulnerable to fluctuations in sector-specific demand or regulation changes.
Financial stability is another critical factor. Since renewable energy projects require significant capital investment, investors should assess the company’s revenue growth, profitability, and debt management. BEP.UN reported a market capitalization of $8.51 billion as of its most recent quarter, with an enterprise value of $49.27 billion. Meanwhile, Northland Power (TSX: NPI) had a smaller market capitalization of $4.44 billion but an enterprise value of $11.43 billion. The enterprise value metric is important because it accounts for both debt and equity, giving a more comprehensive picture of the company’s financial standing. A high level of debt relative to equity can be concerning if cash flow isn’t sufficient to cover obligations.
Dividend yield is another metric that appeals to many Canadian investors. BEP.UN currently offers a forward annual dividend yield of 6.83% with an annual payout of $2.04 per share. NPI, however, has a slightly higher dividend yield of 7.01% with an annual payout of $1.20 per share. While both stocks offer attractive dividends, investors must also consider the payout ratio, which indicates how sustainable the dividends are relative to earnings. BEP.UN’s payout ratio stands at a staggering 649.02%, while NPI’s is at 500%, suggesting both companies are distributing dividends beyond their actual earnings — something that could signal risk in a downturn.
Future outlook
Profitability metrics also play a role in investment decisions. BEP.UN’s revenue grew by 24.7% year over year, demonstrating strong top-line growth. However, the energy stock posted a net loss of $347 million, indicating challenges in converting revenue into profit. Its return on assets (ROA) and return on equity (ROE) are also relatively low at 0.91% and 0.24%, respectively. In contrast, NPI’s revenue declined by 4.4% year over year, but its return on assets was higher at 3.74%. Its return on equity was negative 1.02%, suggesting financial struggles. Both companies appear to be in capital-intensive phases, with high debt levels impacting profitability.
So, what about the future? The growth potential of both companies depends on several factors, including government incentives for renewable energy, interest rate trends, and global energy demand. BEP.UN benefits from Brookfield’s global presence and strong capital backing. This can help it acquire new assets and expand into emerging markets. NPI, while smaller, has a strong offshore wind project pipeline. This could position it well in the next wave of renewable energy development. However, execution risks remain, as large-scale renewable projects require significant upfront investment and regulatory approvals.
Bottom line
Given these considerations, which stock is the better choice for 2025? If an investor is looking for a larger, more globally diversified renewable energy company with strong long-term growth potential, BEP.UN might be the better option. Despite its current financial challenges, Brookfield’s backing and ability to scale its operations give it an edge. However, if an investor prefers a company with a strong offshore wind pipeline and slightly higher dividend yield, NPI could be worth considering. Its smaller market cap means it might offer more upside potential if it successfully executes its projects.
