Best Canadian Renewable Energy Stocks: Earn More While Going Green
Stock investors look to new asset classes to diversify their portfolios while looking for new growth opportunities. For years, financials (banks) and energy companies like Enbridge or Canada Natural Resources have dominated the Canadian stock market. Lately, investors are paying more attention to companies committed to pleasing shareholders while improving our planet. In this article, I’ll show you some clean energy stocks you might want to consider adding to your portfolio.
What Is a Renewable Energy Stock?
Renewable energy relies on renewable natural resources, like water, wind, solar, ethanol, biodiesel, and tidal to produce energy. Renewable energy stocks are for companies that produce energy using these renewable sources, instead of fossil fuels, like coal or gas. The obvious benefit to using renewable energy is an environmental one – water, solar, and wind energy do not harm the environment and are critical to the long-term sustainability of our planet, especially as global populations continue to rise.
Environmentally conscious investors are interested in supporting companies with a green focus. But which companies fit the bill in Canada, and which ones make up the top renewable energy stocks? Below, I share my top five and let you know what makes them a solid investment for green investors.
5 Best Canadian Renewable Energy Stocks
The following renewable energy stocks made it into our top five. All are Canadian companies listed on the TSX, and their market caps range between $3.5 billion on the low end to almost $12 billion at the top. All five companies pay a regular dividend, although two stand out as having a higher dividend yield.
While most of these companies maintain a strong focus on Canadian renewable energy, their assets are highly diversified, with operations located around the globe. These companies capture almost every type of renewable energy source, including hydroelectric, solar, and wind.
Over the long term, they offer investors stable growth, with the opportunity for regular dividend income. Most importantly, all five share a commitment to renewable energy and ensuring that we live in a cleaner, greener world in the future. Let’s take a closer look at each one.
1. TransAlta Renewables
Market Cap: $4.93B
P/E Ratio: 32.87
Dividend Yield: 5.08%
Summary: TransAlta Renewables is a Calgary-based company that owns renewable and natural gas generating facilities. This includes more than 20 wind facilities, 13 hydroelectric facilities, seven natural gas facilities, one solar facility, and more. These facilities are located across 5 Canadian provinces, several US states, and Australia. Investors will love the attractive dividend, which currently yields an impressive 5.08%.
TransAlta facilities have long-term contracts (avg. duration is 11 years) which provides earnings stability for both the company and it’s investors alike. Parent company TransAlta has been around for over 100 years, but launched TransAlta Renewables as recently as 2013.
2. Algonquin Power & Utilities Corp.
Market Cap: $11.67B
P/E Ratio: 12.15
Dividend Yield: 5.03%
Summary: Algonquin Power & Utilities Corp. is headquartered in Oakville, Ontario. The company is made up of two business groups – the Regulated Services Group and the Renewable Energy Group. It’s involved in the generation, transmission, and distribution of renewable energy through a mix of wind, solar, and hydroelectric generating facilities. It’s assets are spread across four continents, although the largest share of its portfolio is located in North America.
Like TransAlta renewables, Algonquin Power has an attractive dividend, currently paying a 5.03% yield, though it doesn’t have a track record of consistently increasing the dividend. The company’s diverse portfolio – in it’s renewable energy sources as well as it’s global reach, provides stability. Revenues are expected to continue to grow at a solid pace.
Algonquin Power is a Dividend Aristocrat. In Canada, for a company to be considered an aristocrat, it must be listed on the TSX, be a member of the S&P BMI, have a market cap of at least $300 million, and have increased its dividend payout for 5 consecutive years. Dividend Aristocrat stocks are the most reliable dividend payers, and Algonquin Power is one.
3. Northland Power
Market Cap: $8.46B
P/E Ratio: 89.83
Dividend Yield: 3.21%
Summary: Toronto-based Northland Power Inc. owns and operates green power infrastructure facilities across four continents, including Asia, Europe, and Latin America. Electricity is produced using wind, solar, and efficient natural gas renewable energy sources. Northland pays out dividends monthly. While the dividend yield is more modest than Algonquin and TransAlta, it’s very sustainable.
In addition to stable dividends, investors benefit from global diversification – the company is continuing its expansion in Asia and Latin America – strong revenue growth and a solid asset base.
4. Brookfield Renewable Partners
Market Cap: $11.99B
P/E Ratio: -33.93
Dividend Yield: 3.55%
Summary: Brookfield is an energy giant with an almost $12 billion market cap. It owns and operates a large portfolio of facilities that generate electricity from renewable resources like wind and solar and hydroelectric facilities. Brookfield has assets in North America, Columbia, Brazil, and Europe.
The company manages more than 19,000 megawatts (MW) of energy across its network. The dividend yield isn’t as high as some, but the growth prospects for the company are strong and the primary reason to invest.
5. Innergex Renewable Energy
Market Cap: $3.57B
P/E Ratio: -17.64
Dividend Yield: 3.89%
Summary: The only company on our list to house its headquarters in Quebec, Longueuil’s Innergex Renewable Energy Inc., owns and operates renewable energy generating assets across three operating segments: hydroelectric, wind, and solar power. It sells the power it generates to publicly-owned utilities and other private entities. It owns and operates more than 75 facilities, with a geographic reach that extends to Canada, France, the United States, and Chile. Don’t buy this stock for its dividend growth; buy it as a long-term play for the steady increase in market value.
Renewable Energy Stock FAQs
Not everyone believes in the potential of renewable energy from an investor standpoint. Power generation through means such as solar, wind, and ethanol has become widespread, but not everyone is convinced of green energy’s ability to replace fossil fuels. Let’s look at a few renewable energy FAQs, starting with whether clean energy is a good investment.
Is clean energy a good investment?
While the demand for fossil fuels will still be required for several years, if not decades, there’s a consensus that the world needs to continue its massive shift towards renewable energy. In 2021, it’s still early days, and renewable energy will be a growth industry for years to come. Of course, you should view any investment in green energy with a long-term lens.
What is the largest green energy stock?
The largest renewable energy stock currently belongs to Brookfield Renewable Partners, followed by Algonquin Power & Utilities Corp.
Why is Canadian Solar stock falling today?
There are currently two primary factors negatively impacting the Canadian solar energy industry. The first is the fear that potentially rising interest rates could hurt solar development. Secondly, Canada’s strained relationship with the Communist Chinese government and the resulting uncertainty pressure the solar industry.
Final Thoughts on the Best Renewable Energy Stocks
Clean energy stocks offer investors growth opportunities in an industry that will continue to expand in the coming decade.
Green energy companies like the ones I’ve featured here are constantly looking to acquire new renewable energy assets in Canada and around the world.
Before investing in clean energy stocks, make sure the strategy fits your investment profile. There will be solid dividend growth opportunities, and green energy stocks should continue to increase earnings. With that in mind, it’s still a long-term investment. Solar farms, wind power, these technologies still need to be refined.
I always struggle when I see Algonquin included in lists like this.
I agree that there is a portion of their business that is dedicated to generating “green” power, but how much is it in relation to the rest of their business?
Their LDC business is huge, and they rate case those customers to death extracting as much revenue as they possibly can.
Not to mention their latest acquisition in the LDC space in Kentucky where green energy is certainly not the priority.
Maybe I’m wrong, and I would welcome information that shows I’m mistaken, but for me, they have a long way to go before the majority of their business is “generated” (pardon the pun) from green energy.
And, I do own them, I like the business, and the dividend. I just think that the renewable energy portion of their business is not always what it’s perceived to be.