While most investors chase quarterly dividends, smart money is targeting monthly passive income from the electricity boom that’s just getting started. One of the most rewarding investing goals is passive income. Set yourself up so you can take a break and rest while your money works for you.
In this article, I’ll discuss a TSX stock that’s a compelling passive income idea in Canada, as it’s well-equipped to provide investors with monthly passive income today and well into the future.
Source: Getty Images
What is passive income?
Passive income is a stream of income that requires little or no continuous effort. It has the potential to set us free from the necessity of continuously working to generate income. This passive income can come from many different sources, including real estate properties, royalties, interest income, and, of course, equity investments.
Clearly, there are different ways to make passive income in Canada. I will focus on one passive income idea, Northland Power (TSX:NPI). Northland Power is a TSX stock that’s slated for strong shareholder returns and dividend growth well into the future. This makes it a solid option for your passive income needs.
What is Northland Power?
Northland Power is a Canada-based global power producer. The company has a diversified list of energy-producing assets, such as clean-burning natural gas, wind, and solar assets. Its portfolio of assets is also geographically diversified, with power-producing assets in places such as Asia, Europe, and North America.
The 36% decline in Northland Power’s stock price has created a rare opportunity to buy into the electricity super-cycle at a discount, with projects set to double capacity by 2030. There were three main drivers of this weak stock price performance: the company’s high debt load, a dividend cut, and capital-intensive projects that have encountered some setbacks. Most recently, delays in its offshore wind project, Hai Long, took a toll on investors’ confidence in the company and the stock.
What does this mean for investors?
Well, for those of us who were already invested in Northland Power’s shares, this is obviously not great. But, for those investors who are looking for a dividend stock to buy for passive income, this is good news. Because today, Northland Power’s stock price is presenting us with an attractive opportunity to buy.
The reasons for this are plenty. Firstly, Northland’s current dividend yield is a respectable 3.38%. The dividend is paid out monthly, and it’s well-covered by Northland’s operating cash flows and future growth prospects. As Northland’s management highlighted, after decades of flat electricity demand, we are entering a period of rising demand. A power super-cycle driven by electrification, industrial growth, population growth, urbanization, and a rise in artificial intelligence demand.
Today, coverage of Northland’s dividend is much improved after the company reduced it to $0.72. This has given Northland increased flexibility. Also, this allows Northland to self-fund its capital growth projects and to strengthen its balance sheet through debt repayments.
On the negative side, we have the reality that Northland Power still grapples with a capital-intensive business, with execution and timing risk. This combination can wreak havoc on Northland’s numbers in the short term, but the long-term story remains intact, in my view.
Looking ahead
We are at an inflection point — electricity demand is rapidly rising.
In response, Northland Power is targeting a doubling of its operating capacity by 2030. Hai Long, Northland’s offshore wind project located offshore Taiwan, is expected to commence operation in 2027. Baltic Power, Northland’s offshore wind farm in the Polish Baltic Sea, is set for completion in 2026. And Northland’s battery storage projects are on track for 2026 completion. In the long term, European governments have committed to expanding their offshore wind facilities in the North Sea. This provides additional long-term visibility for Northland.
All of these projects will boost the company’s cash flows in the years ahead.
The bottom line
The electricity super-cycle is accelerating. Northland Power offers a 3.38% monthly dividend while positioning for the capacity doubling ahead. For Motley Fool members seeking monthly passive income ideas in Canada from tomorrow’s energy infrastructure, this TSX stock deserves serious consideration today.
