Supplementing your income with dividends is a smart way to earn greater wealth over time. It’s not a get-rich-quick scheme, it’s one that requires patience and discipline. In the long run, the passage of time and the compounding of returns will likely allow you to accumulate more wealth than you can imagine.
In this article, I’ll take a look at Capital Power Corp. (TSX:CPX) stock, a growth-oriented power producer that has been providing shareholders with strong total returns over the last 10 years – in the form of both dividends and capital appreciation.
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Capital Power – A brief history
For starters, let’s look back for a brief review of Capital Power. This background can help build the case for Capital Power shares.
The company was created in July 2009 to separate Epcor Utilities Inc.’s generation business into a new, publicly-traded independent power producer. Since then, the company has consistently followed a business model that focuses on generating stable and growing cash flows from a contracted and merchant power generation portfolio.
Today, Capital Power is focused on natural gas-fired generation, which involves burning methane to create electricity. This is the cheapest and quickest form of energy, with a booming demand profile. With a 90% natural gas weighting, the company has positioned itself to benefit from this surge in power demand.
Since 2009, the company has grown capacity by more than four times. This means that the power producer has greater scale and diversity to lead it into the next few years.
CPX stock on the TSX
At this time, Capital Power stock is yielding a generous 4.1%. This dividend is supported by strong cash flows, a strong balance sheet, and a growing business. And Capital Power has a variety of opportunities to continue to grow.
For example, power prices and spreads are increasing rapidly. As such, there’s a vast opportunity for re-contracting at much better terms. This is resulting in contracts with higher pricing and longer duration. As an illustration of the kind of value that this has to the company, I’d like to single out two recent re-contracting results.
The first is the Midland Cogeneration Venture in Michigan. Last year, the company signed new contracts for this facility which resulted in an 85% lift in its earnings before interest, taxes, depreciation, and amortization (EBITDA). Similarly, the company entered into a new contract for its Arlington Valley facility, at 140% above the existing contract.
Over and above this, the power producers will continue to benefit from the unprecedented rise in energy demand that’s expected in the coming years. In 2025, its adjusted EBITDA increased 18% to $1.6 billion and its adjusted funds flow from operations increased 29% to $1.1 billion. This is evidence that the company’s current strategy and macro backdrop is working in its favour.
How much to invest in CPX stock for $1,000 in annual dividends
So, in order to receive $1,000 in annual dividends from CPX stock, we must buy 362 shares. To be exact, this would give you $1,001.57 in dividend income. Considering that CPX’s stock price is currently trading at $66.87, this requires an investment of approximately $24,200.
The bottom line
As one of the lesser-known utility stocks, Capital Power has clear advantages. It’s rapidly growing, consistent results will continue to support a growing dividend and share price. Currently CPX’s stock price is trading at a mere 20 times next year’s expected earnings. With a dividend yield of 4.1%, this is a utility stock to consider for your dividend income needs.
