Renewable energy is the future. The shift from fossil fuels started a long time ago. Right now, we are in the early stages of this transition, but the momentum is building up.
Canada is now the sixth-largest renewable energy producer in the world with 101 GW of installed renewable energy capacity. Sentiment around the energy sources is shifting as well, and 73% of Canadians want to see the country supporting green energy.
As an investor, you may want to mimic this transition as well. Start by adding some of the best Canadian renewable energy stocks that the TSX has to offer.
What Is A Renewable Energy Stock?
Renewable energy companies are the ones that produce electricity using renewable energy sources, i.e., things that don’t run out or are naturally replenished.
The most common and ancient renewable energy source is water. Thousands of years prior, humanity harnessed the power of water through water wheels. Water is still the most commonly used renewable energy source and makes up more than 67% of Canada’s total renewable energy production.
Other sources include:
- Solar (electricity through a solar panel)
- Wind (same principle as water)
Sources like solar and wind don’t run out, and they are more than enough to create electricity for the entire planet (even in its currently over-populated state). The morally pragmatic reason for choosing renewable over fossil is that it doesn’t harm the planet like fossil fuels do.
Some people argue that the shift from fossil to renewable will kill the energy industry as it stands, affecting the lives and livelihood of millions of people, especially in an energy-heavy country like Canada. But it’s an inevitable next step, and the sooner the world accepts that, the better it would be for the planet and us.
Best Canadian Renewable Energy Stocks
For this list, we’ve chosen companies that predominantly produce electricity via renewable sources. Even though major utility producers like Fortis are expanding to renewables, they aren’t quite there yet, so they are not part of this list.
1. Algonquin Power Stock
Dividend Yield: 3.88%
Market Cap: $12.25 billion
Algonquin is arguably one of the best renewable energy stocks currently trading on the TSX. It’s a dividend aristocrat (nine-years of consecutive dividends) with a decent yield, and it has grown its dividends at a generous pace (61% in the last five years).
Its ten-year CAGR is even more impressive: 21.28% and the best part is that it’s not high because of a post-pandemic spike in the stock valuation but has been growing steadily for the past 11 years at least.
The company operates under two major subsidiaries: Liberty power and Liberty utilities. Liberty power has a stake in 35 clean energy production facilities, including wind, solar, and hydroelectric. In contrast, Liberty utilities take care of electricity distribution and water, gas distribution and wastewater treatment.
The company has $11 billion worth of assets, over 267,000 electrical connections and 369,000 gas connections. This end-to-end production and distribution are one of the reasons for this company’s amazing growth.
2. TransAlta Renewables Stock
Dividend Yield: 5.34%
Market Cap: $4.72 billion
TransAlta is a monthly dividend payer with a juicy yield. The company has over 44 power generation assets (including 23 wind, 13 hydro, and seven natural gas facilities). The company is capable of producing 2,537 MW of electricity through various sources, but it doesn’t sell electricity directly to the consumers. Instead, it has contracts with regional industry and junior partners.
The good news is that the average contract life of TransAlta’s facilities is 11 years, which means its returns for the next decade are quite secure. This stability translates well for investors and their dividends.
The company is relatively young, especially compared to most other utility and renewable energy companies, and has only been around for about seven years.
Its five-year CAGR is 19.6%, and if it can maintain or improve upon it, this growth rate can become a powerful catalyst in your portfolio’s expansion (depending upon how much stake you’ve bought in the company).
3. Brookfield Renewable Partners Stock
Dividend Yield: 2.9%
Market Cap: $23.8 billion
Brookfield is a powerhouse of renewable energy assets. It controls about 5,318 power generation facilities, capable of producing 19,400 MW of electricity. The assets are globally diversified in four continents and are worth about US$52 billion.
The portfolio is dominantly North American (regionally), and hydro is the primary renewable energy source, making up about 74% of the total mix. This diversification is one reason to choose Brookfield since it allows relative security to the stock.
While the yield might not be very attractive, its overall growth potential is certainly worth considering. Its ten-year CAGR of 22.73% (dividend-adjusted) can be a powerful addition to your portfolio. The balance sheet is powerfully strong, and the company has been growing its revenues at a steady pace.
One reason to consider this stock with a bit of healthy skepticism is that it doesn’t grow or sustain its payouts. It increases its dividends when revenues are growing, but it’s just as likely to slash your dividends when the revenue goes down.
4. Northland Power Stock
Dividend Yield: 2.7%
Market Cap: $8.8 billion
Northland is another dividend stock that offers monthly payouts. Its modest yield is coupled with a stable payout ratio, making it quite sustainable. The company produces electricity using solar farms, onshore and offshore wind facilities, and efficient natural gas.
The onshore facilities and efficient natural gas facilities are in Canada, whereas the offshore wind farms are in Europe. The company’s total capacity is 2.4 GW.
The company is steadily growing its revenues as well as its asset-base. The company has been around for 33 years, and it’s expanding out to Latin America and Asia as well.
Thanks to a geographically diverse portfolio of renewable energy assets, the company is expected to be profitable even when local energy stocks take a dip. Its 10-year CAGR is 17.4%. It’s a bit inflated because of the rapid growth after the market crash, but even before the crash, the stock was steadily going up, albeit at a modest pace.
5. Innergex Renewable Energy Stock
Dividend Yield: 2.77%
Market Cap: $4.49 billion
Innergex is another aristocrat in this list and has been growing its dividends for the past six years. The company has 75 facilities that are currently operational, while ten are under development. The total production capacity is 3,694 MW, which is enough to power over 850,000 homes.
The facilities are located in four countries: Canada, the USA, France, and Chile. The company has been growing its market value at an incredible pace in the past ten years, and the CAGR is 16%. That’s enough to turn a $5,000 investment into $97,000 in twenty years.
The dividend growth hasn’t been very generous, but the company has proven that it can sustain and grow its dividends through a highly unfavorable payout ratio. It’s unlikely to break this streak. If you choose to reinvest the dividends and the company keeps growing at its current pace, it can set you up for decades.
6. Boralex Stock
Dividend Yield: 1.6%
Market Cap: $4.06 billion
Boralex operates primarily in Quebec and has been in businesses for the last 30 years. The company has a portfolio comprising of the typical four energy sources (wind, solar, thermal, hydro) as well as storage facilities that augment the transmission.
Right now, wind and solar dominate the portfolio, with 16.6 GW and 9 GW production capacity, respectively. The company is planning to grow its total production capacity to 73.6 GW by 2028.
The company is expanding its geographical reach in both North America and Europe. The clean energy market is growing at an aggressive pace in Europe, and investing there might allow the company to grow faster.
The stock is likely to follow. Even now, its 10-year CAGR is 19.18%, powerful enough to turn your $5,000 into over $150,000 in two decades (if it can keep growing at this pace).
7. Polaris Infrastructure Stock
Dividend Yield: 4.29%
Market Cap: $290 million
The last stock on this list is by far the smallest by market cap and asset value, but its juicy dividend yield and a powerful five-year CAGR of 20% makes it worthy of consideration. The stock has outlived its glory days, but it has been showing some life in the past few years.
Before the great recession, it used to be one of the most expensive securities on the TSX and had a four-digit price tag.
The company focuses on identifying, acquiring, and developing renewable energy assets, primarily in Latin America. Despite the brutal decimation of its valuation about a decade ago, the company seems stable and even profitable in its current state.
The balance sheet is strong, and the five years CAGR of 20.5% is the third-highest on this list. Right now, it only has two operational projects: one geothermal facility in Nicaragua and a hydroelectric facility in Peru.
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Before choosing from the best Canadian renewable energy stocks in your investment portfolio, make sure they match your investment goals and risk appetite.
Utility stocks are typically quite safe, but several market conditions can still bring their valuation down. Try to buy these stocks during a dip, so you can get a discounted price and lock in a better yield.
If you’re interested in dividend stocks, check out this list of the top Canadian dividend aristocrat picks.