7 Best Canadian Renewable Energy Stocks (Oct 2022): The Future of Energy

Looking to invest responsibly by adding renewable energy stocks to your portfolio?

Hydroelectricity is the most critical energy source in Canada, making up 59.3% of the country’s electricity generation

Investing in renewable energy is not only a sound way to help protect your environment but is also likely a good way to grow your money over a long period of time.

We will discuss some of the best Canadian renewable energy stocks further below.

Understanding Renewable Energy

With climate change becoming a growing concern, a large focus has been placed on developing and maintaining renewable energy sources.

The common sources of renewable energy include:

  • Solar Energy
  • Wind Energy
  • Geothermal Energy
  • Hydropower
  • Ocean Energy
  • Bioenergy

Generating renewable energy typically has large up-front costs (in terms of setting up infrastructure) but can lead to clean, long-term energy generation.

As an example, wind power capacity in Canada, measured by the number of operating wind turbines, has grown exponentially since the start of the 21st century.

wind power capacity in Canada

Additional facts about renewable energy in Canada include:

  • Renewable energy makes up about 18.9% of Canada’s total energy supply
  • Wind and biomass are the 2nd and 3rd most important sources, respectively
  • Canada is a world leader in the production and use of renewable energy

Pros and Cons of Canadian Renewable Energy Stocks

Like all other investments, renewable energy stocks come with their advantages and disadvantages. The fundamental pros and cons of renewable energy stocks are directly tied to the pros and cons of renewable energy as a whole.

Despite renewable energy disadvantages, dependency on renewable energy sources will probably increase in the future as we transition away from fossil fuels.

Pros
  • Cleaner future energy generation
  • Investing in a young industry with immense future growth potential
  • Renewable energy sources are abundant and self-sufficient over the long term once set up
Cons
  • Business seasonality and dependence on ideal environmental conditions
  • High upfront costs 
  • Company operations typically requiring significant land space

Best Canadian Renewable Energy Stocks

1. Brookfield Renewable Partners

Brookfield Renewable Partners Stock
  • Ticker: BEP-UN.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 3.26%
  • Dividend Payout Ratio: N/A
  • Dividend Yield (12-Month Trailing): 2.85%
  • Upcoming Dividend Date: Sep 29, 2022
  • Market Cap: $27.76 Billion
  • Forward P/E Ratio: 110.9
  • Average Analyst Rating: 2.3 - Buy

Brookfield Renewable Partners is the largest Canadian renewable energy stock by market capitalization. It is a subsidiary of Brookfield Asset Management, one of the largest alternative asset managers in the world.

BEP’s portfolio currently focuses on

  • Hydroelectric power generation
  • Wind power generation
  • Solar power generation
  • Energy storage facilities

BEP’s operations are geographically diversified across Asia, Europe, South America, and North America. The company is currently committed to increasing its dividend to investors by 5 – 9% yearly.

BEP is a well-capitalized company with a credit rating of BBB+ and available liquidity of approximately $4 billion. It is currently well diversified between renewable energy sources:

renewable energy sources

BEP currently generates 21 gigawatts (through operating assets) and is currently in the development of infrastructure to generate an additional 69 gigawatts.

The company’s current energy generation has the potential to avoid 100% of New York City’s annual emissions.   

BEP pays a good dividend yield and is well positioned to continue being a key player in the renewable space in Canada.

If you are looking for a Canadian renewable energy stock that pays a good dividend and is well diversified in its operations and geography, Brookfield Renewable Partners is an excellent choice.

2. Northland Power

Northland Power Stock
  • Ticker: NPI.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 2.68%
  • Dividend Payout Ratio: 49.40%
  • Dividend Yield (12-Month Trailing): 2.83%
  • Upcoming Dividend Date: Oct 17, 2022
  • Market Cap: $9.73 Billion
  • Forward P/E Ratio: 20.45
  • Average Analyst Rating: 1.9 - Buy

Northland Power is another large, publicly-traded Canadian renewable energy company. It has been developing and running renewable energy facilities since 1987.

Northland Power is much smaller in terms of power generating capacity than BEP. Northland owns or has an interest in approximately 3 gigawatts of generating capacity. Projects currently in development are estimated to add another 14 gigawatts of capacity.

In terms of energy sources, Northland is highly concentrated across wind energy and efficient natural gas.

Northland efficient natural gas

Geographically, the company has operations across North America, South America, Europe, and Asia. NPI has over 1,000 employees and has a credit rating of BBB.

Northland pays a decent forward dividend yield (lower than Brookfield) and is characterized as a core stock, falling in between value and growth based on valuation metrics.

NPI has both common shares and preferred shares outstanding and has made regular dividend payments to common shareholders since its public inception.

Northland Power is a great stock to consider for your portfolio within the Canadian renewable energy space.

3. Algonquin Power & Utilities

Algonquin Power and Utilities Stock
  • Ticker: AQN.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 5.04%
  • Dividend Payout Ratio: 230.87%
  • Dividend Yield (12-Month Trailing): 4.37%
  • Upcoming Dividend Date: Oct 14, 2022
  • Market Cap: $10.47 Billion
  • Forward P/E Ratio: 14.17
  • Average Analyst Rating: 2.7 - Hold

Algonquin Power & Utilities is another large renewable energy player in Canada.

As per the latest annual report, AQN is headquartered in the Greater Toronto Area and operates approximately:

  • 1,541 wind turbines
  • 1,217,680 solar panes
  • 55 hydroelectric generators

The company also employs roughly 3,400 individuals. AQN owns 41 energy facilities and has a 2.3-gigawatt gross installed capacity.

Algonquin 2021

Algonquin has a reputation for having a very fast earnings growth rate, having implemented a substantial capital expenditure plan in place for the next several years.

When counting projects currently in progress, Algonquin has a total electrical capacity of roughly 4 gigawatts.

The company has historically maintained a 10% compounded annual growth rate in its dividend, proving to be very attractive for investors looking for sustained dividend growth over time.

Algonquin pays a relatively high forward dividend yield (vs peers) and trades at a more attractive forward P/E multiple than Northland.

As a Canadian renewable energy stock with a high dividend yield, Algonquin should be very attractive to income-oriented investors.

4. TransAlta Renewables

TransAlta Renewables Stock logo
  • Ticker: RNW.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 5.44%
  • Dividend Payout Ratio: 218.60%
  • Dividend Yield (12-Month Trailing): 6.18%
  • Upcoming Dividend Date: Sep 29, 2022
  • Market Cap: $3.94 Billion
  • Forward P/E Ratio: 18.7
  • Average Analyst Rating: 3.2 - Hold

TransAlta Renewables is a Canadian company focused on wind, solar, and hydro facilities across North America (mainly Canada and the US). 

The company has an interesting corporate structure – TransAlta Corporation has a 60% ownership interest in TransAlta Renewables. As a majority shareholder, TransAlta Corporation intends to maintain its large ownership position in the future.

TransAlta Corporation is actually contracted by TransAlta Renewables to manage the latter’s employees and operations in exchange for a management fee.

RNW aims to continue growing its renewable energy infrastructure portfolio and to keep on contracting out assets to credit-worthy counterparties for stable long-term operations and cash flows.

The company currently operates:

  • 13 hydro facilities
  • 22 wind facilities
  • 1 solar facility
  • 1 battery storage facility
  • 6 gas facilities

TransAlta has a high forward dividend rate, which will be attractive for investors looking for income.  Currently, the company also has a high dividend payout ratio, meaning that its high dividend will likely be unsustainable going forward.

One key feature of TransAlta Renewables is that it pays dividends to investors on a monthly basis. This is fairly rare among stocks and makes RNW a very attractive choice for individuals that are looking for monthly income sources.

If monthly income is something that you value, TransAlta Renewables is an excellent stock choice within the Canadian renewable energy space.

5. Innergex Renewable Energy

  • Ticker: INE.TO
  • Size: Mid Cap
  • Valuation: Growth
  • Forward Dividend Yield: 3.66%
  • Dividend Payout Ratio: N/A
  • Dividend Yield (12-Month Trailing): 3.97%
  • Upcoming Dividend Date: Oct 17, 2022
  • Market Cap: $3.50 Billion
  • Forward P/E Ratio: 47.58
  • Average Analyst Rating: 2.4 - Buy

Innergex Renewable Energy is another Canadian stock to consider on our list, with headquarters in Longueuil, Quebec.

With a 100% focus on clean energy, Innergex has an installed gross capacity of just over 4 gigawatts of renewable energy. It currently owns interests in 84 operating facilities and 13 projects under development across Canada, the US, France, and Chile.

Innergex pays a good dividend yield which has been constantly growing over the past several years. On an annualized basis, the company’s dividend has grown by 2.1% per year since 2018.

Innergex dividend growth

At the same time, Innergex has worked to reduce its dividend payout ratio over time, making future dividends more sustainable.

Innergex cash flow

As a growth stock, Innergex trades at very high valuation multiples relative to other Canadian renewable energy stocks. The growth label also indicates that investors expect Innergex to aggressively grow its bottom line in the near future.

Investors looking for a Canadian renewable energy stock with a growth profile may find Innergex to be an attractive investment option.

6. Boralex Inc.

  • Ticker: BLX.TO
  • Size: Mid Cap
  • Valuation: Core
  • Forward Dividend Yield: 1.36%
  • Dividend Payout Ratio: 115.79%
  • Dividend Yield (12-Month Trailing): 1.45%
  • Upcoming Dividend Date: Sep 16, 2022
  • Market Cap: $4.47 Billion
  • Forward P/E Ratio: 37.53
  • Average Analyst Rating: 2.2 - Buy

Boralex is a large publicly-traded player in the Canadian renewable energy space as well as globally. The company operates facilities in Canada, France, and the US, and currently has projects in development in the UK.

Currently, Boralex is the largest independent producer of onshore wind power in France. The company’s installed capacity has doubled over the past five years to approximately 2.5 gigawatts. Projects currently underway are expected to add another 4 gigawatts of electricity capacity.

As of mid-2022, 98% of Boralex’s capacity was secured by indexed, fixed-price energy contracts. By having almost all assets contracted over the long term, Boralex is providing investors with smoother and more secure earnings and operating results.

Boralex’s capacity

Boralex’s common shares have been paying an increasing yield since the dividend’s introduction in 2014.

The company is also very focused on corporate social responsibility (CSR), with stringent ESG and CSR objectives put in place in the short and intermediate term.

Boralex stock trades at relatively high valuation multiples against its peers. It also pays a fairly low dividend yield, making it less attractive for income-focused investors.

With a strong European presence and a high percentage of contracted electrical capacity, Boralex is a good Canadian renewable energy stock to consider.

7. Polaris Renewable Energy Inc.

Polaris Renewable Energy
  • Ticker: PIF.TO
  • Size: Small Cap
  • Valuation: Core
  • Forward Dividend Yield: 4.12%
  • Dividend Payout Ratio: 500.00%
  • Dividend Yield (12-Month Trailing): 3.57%
  • Upcoming Dividend Date: Aug 26, 2022
  • Market Cap: $308.07 Million
  • Forward P/E Ratio: 16.62
  • Average Analyst Rating: 1.5 - Strong Buy

Polaris Renewable Energy Inc. is the smallest of the Canadian renewable energy stocks on our list – it is many times smaller than the next largest company by market capitalization.

Although Polaris is a Canadian company, it produces renewable energy exclusively in Latin America.

renewable energy exclusively in Latin America

The company currently has five renewable energy plants in operation, one in process of being acquired, and one in construction.

The company’s electricity capacity is just over 100 megawatts (or 0.1 gigawatts). It is aiming for a capacity of roughly 350 megawatts (0.35 gigawatts) sometime between 2025 and 2027.

Polaris has a substantial emphasis on ESG and corporate social responsibility.

Polaris ESG and corporate social responsibility

Polaris’ dividend as a percentage of operating cash flows is lower than its Canadian peers, and it also trades at a much lower 2022 EV-to-EBITDA multiple. The company generates substantially less electricity and is highly geographically concentrated (versus peers).

Polaris stock pays a good dividend yield to investors. 

If you are looking for a smaller Canadian renewable energy company, Polaris may be a good stock to consider for your portfolio.

Should You Invest in Renewable Energy Stocks?

Renewable energy stocks are involved in an industry that will likely grow in scale and application in the future. Currently, fossil fuels still make up a significant portion of our energy consumption. 

With that said, renewable energy stocks are likely a great investment for investors that:

  • Are looking for an ESG investment or to invest responsibly
  • Have a long-term investment time horizon
  • Can accept a relatively lower dividend yield (especially versus oil and gas stocks)

Before investing in renewable energy stocks, make sure that equities are appropriate within your investment portfolio.

What is the Largest Renewable Energy Stock in Canada?

The largest renewable energy stock (by market capitalization) in Canada is Brookfield Renewable Partners.

Is There More Wind or Solar Power in Canada?

Wind power generation is much more widely developed within Canada. It is the second largest source of renewable energy in the country after hydropower.

Is Renewable Energy a Good Investment?

Renewable energy is likely a good investment because of the increasing challenges we face involving climate change. As the world increases its consumption and generation of renewable energy, renewable energy stocks should fare well.

What Country is Leading in Renewable Energy?

In terms of renewable energy production, China is the largest producer of both wind and solar energy in the world. As a share of total energy consumption, Norway has the highest share of renewable energy usage globally.

Conclusion

Renewable energy stocks allow you to invest in companies that will likely be crucial to the energy supply of the world in the near future.

Since investing is a long-term endeavour, it aligns well with the long-term growth potential of the renewable energy industry.

If you are looking for additional diversification, make sure to consider the best ESG ETFs in Canada within a responsible investing context.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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