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Best Renewable Energy Stocks – Clean Energy Stocks May 2021

Posted in on May 12, 2021 by Dan Kent

Disclaimer: The writer of this article may have positions in securities listed below. Stocktrades may also be compensated via affiliate links in the post below

There's no questioning the fact that as a population we're moving towards cleaner, greener forms of energy. Fossil fuels will be a thing of the past, and the world will benefit immensely from it.

How long will it take before Canadian renewable companies dominate the energy scene? It's difficult to say. But if I were to guess, not long at all. That's why you need to have a look at these Canadian stocks before it's too late.

The effects of fossil fuels on the climate and climate change in general is an extremely touchy subject, and arguments from both sides tend to pack a sizable punch in terms of support. Plus, much like Canadian gold stocks, fossil fuel companies rely heavily on a commodity and can be quite cyclical.

But all while this is happening, green energy companies here in Canada are quietly amassing large asset bases and production capacities. It's an investment gold mine.

Your best bet as an investor is to funnel out the noise and instead take a position in a strong TSX listed renewable energy stock.

Because it's a matter of when, not if these companies take over as the primary method of energy generation. And while people sit on the sidelines, squabbling over if swapping to renewables is worth it, you can be making boatloads of money off of it.

Don't believe me? These clean energy companies have crushed the returns of the TSX Index.

So if you're new to buying stocks here in Canada, you may want to know what exactly these Canadian renewable energy companies do?

What exactly do Canadian renewable energy companies do?

Renewable energy is defined as such:

"energy from natural resources that can be naturally replenished within a human lifespan." - Natural Resources Canada

Renewable energy companies provide sources of power that are often considered cleaner and more sustainable. How about some examples of renewable power?

  • Hydroelectric
  • Wind
  • Solar
  • Biomass
  • Hydrogen

Renewable energy provides nearly 20% of Canada's energy supply, with hydroelectricity accounting for over half of that.

A common misconception, renewable companies aren't the new kids on the block. They have been around for quite some time now, and as a result clean energy stocks provide stable and reliable cash flows, much like regulated utility giants Fortis, Canadian Utilities and Emera.

The end result?

Clean energy companies are able to provide strong dividends to go along with upside potential in an ever growing industry.

Let’s take a closer look at four renewable energy companies we think are the cream of the crop here in Canada for 2021.

As requested by many readers, we've also added a solar energy company to the list in this most recent update. Solar stocks in Canada have been around for a while, but have remained relatively unknown due to high costs, and investors are starting to gain interest


Four Canadian renewable energy companies you need to be looking at in 2020

4. Canadian Solar Inc (NASDAQ:CSIQ)

Canadian Solar Stock

One of the primary reasons we've never included a Canadian solar company on this list of renewable energy stocks is the fact that the best of the best trades down south on the NASDAQ. However, due to increasing demand we figure we'd start talking about Canadian Solar Inc (NASDAQ:CSIQ).

Solar stocks in general have surged as of late, but since its lows in March 2020 Canadian Solar has shot up over 350% and the stock is at all time highs.

So why the bullish sentiment now? Prior to this recent surge, the stock had traded sideways for the better part of 5 years.

Well, we think investors, and analysts are finally starting to see the potential in the once small cap Canadian (but U.S. traded) company.

Canadian Solar benefits from a fairly low cost of production and has a decent amount of projects planned for the future. In fact, in August the company stated it would be constructing one of the largest rooftop solar projects ever built in Malaysia, spanning more than 26,000 square meters.

Initially, solar power took a lot of heat. Production costs were extremely high, and it wasn't looked at as a permanent solution to dirtier forms of power.

But the fact is, we wouldn't even need to capture one-hundredth of a percent of the energy hitting the earth in a year to be able to scrap every other form of energy generation. And as costs of production come down, it's becoming a more feasible clean energy generation method.

Canadian Solar has been a very frustrating stock for those buying it as a value investment.

But interestingly enough, even with a 350% run up, Canadian Solar is still fairly valued considering the future of solar energy.

Trading at only 0.74 times sales, 2.04 times book and 14.89 times trailing earnings, Canadian Solar is trading significantly lower than industry averages.

Keep in mind however, this is the only renewable energy stock on this list that doesn't currently pay a dividend, and we would classify this stock as the highest risk of the bunch as well.

CSIQ 5 year performance vs the NASDAQ:

3. Brookfield Renewable Energy Partners (TSX:BEP.UN)

Renewable energy companies Canada - Brookfield Renewables

Brookfield Renewable Energy Partners (TSX:BEP.UN) is another pure-play renewable company and is one of the fastest growing by a landslide. The company is expected to grow earnings at a rate of nearly 40% over the next 5 years.

To add to this, the company is already the fastest growing pure-play renewable energy company in the country with a compound annual growth rate of 10.71%.

The company has over 18,000 MW of capacity and over 5,250 facilities in North America, Europe, Asia and South America. The company's goal is to deliver shareholders annual returns in the 12-15% range. Thus far, it has more than accomplished its objective.

The company's portfolio consists of wind, solar, storage facilities and distributed generation and most importantly, hydroelectric, which makes up over 74% of its portfolio.

Back in March of 2020, the company entered an agreement to buy Terraform Energy in an all stock deal. This purchase will make Brookfield Renewable Partners the biggest pure-play renewable energy company in the world.

The purchase does present high potential, but also high risk. Brookfield would assume over $5.5 billion in debt. Terraform had a debt to capital ratio of nearly 75%. Compared to Brookfield’s 33%, this is a significant increase.

With that being said, the company pays a generous dividend of 3.85% and the dividend accounts for only 87% of funds from operations.

Management has stated they want its dividend to grow by 5-9% annually over the next 5 years. This would be an increase over its past results, so it will be interesting to see how the company performs.

Almost anytime in 2020 proved to be an excellent opportunity to add to or take a position in BEP.

However, Brookfield Renewables has run up a bit recently, and it may be wise for investors looking to grab this renewable energy giant to wait for a dip. The mean analyst target price is right around the current stock price, suggesting it is right around fair value.

It is trading at 28x forward FFO, and is possibly the most expensive renewable company in Canada right now.

That is primarily the reason why the stock is number 3 on this list. With a dip in price, it could easily launch to the first position.

With that being said, if you're looking for Canadian renewable stocks, keep Brookfield Renewables on your watchlist for now.

BEP.UN 5 year performance vs the TSX:

Market Cap: $16.4 billion
Forward P/E: 128
Dividend Growth Streak: 10 years
Payout Ratio (Earnings): N/A
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 5.34%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

2. Northland Power (TSX:NPI)

Renewable Energy Stocks Canada - Northland Power


Northland Power (TSX:NPI) is a pure play renewable energy company, and one that has been in business for a long period of time. The company was established in 1987, and operates nearly 2500 MW of electricity.

The company also has an additional 400 MW of capacity under construction, which would increase its gross production by 16.5%.

Northland has witnessed some incredible growth in terms of earnings over the last 3 years with a compound annual growth rate (CAGR) of 31%. The company has also managed to more than double revenue since 2015.

The bulk of the company's renewable operations are located in Eastern Canada.

In fact, the farthest the company reaches out west are two facilities in Saskatchewan - its Spy Hill facility with 86 MW of production and its North Battleford facility, with 260 MW of production. Both of these facilities generate power by burning natural gas and full contracts are established until 2036 and 2033 respectively.

The company has a total of 25 assets, 2 of which we've already talked about. With 19 facilities in the province, Northland has a high percentage of its assets in Ontario. Quebec has 2 wind farms, while the Netherlands and Germany have one wind farm each, Netherlands being offshore.

The renewable company closed on its acquisition of EBSA back in September of 2019, a Colombian regulated utility company for around $1.05 billion. EBSA serves nearly half a million customers, and its revenue is highly regulated, thus highly reliable.

In terms of performance, Northland Power, at least over the last year and a half, has not disappointed. The company posted earnings beats in 6 straight quarters, often posting earning beats in excess of 50%. Analysts are also predicting top line growth of 26% in 2020 and 30.1% in 2021 for the renewable giant.

The company currently has a yield of 2.55% and a payout ratio in terms of earnings of 60.5%.

Northland Power's lack of dividend growth is one of the primary reasons it falls short on this list. But, don't let that fool you, this is still a very strong renewable energy stock.

NPI.TO 5 year performance vs the TSX:

Market Cap: $9.49 billion
Forward P/E: 22.98
Dividend Growth Streak: 0 years
Payout Ratio (Earnings): 60.5%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 0%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only

1. Algonquin Power (TSX:AQN)

Green energy companies Canada - Algonquin Power

Algonquin Power & Utilities (TSX:AQN), at least to us, is the clear cut winner when you're looking for a Canadian renewable energy play.

Algonquin Power & Utilities is a diversified generation, transmission and distribution utility company. The company provides rate regulated natural gas, water, and electricity generation, transmission, and distribution utility services to over 800,000 customers in the United States and Canada.

The company is engaged in the generation of clean energy through its portfolio of long term contracted wind, solar and hydroelectric generating facilities representing more than 1,600 megawatts (MW) of installed capacity.

There are a few things we really like about the company, but there's one thing that stands out with Algonquin, and that is its growth rates.

Algonquin is one of the fastest growing utility companies on the TSX Index. In fact, analysts expect the company to grow revenue by 11.3% in 2020 and 26.6% in 2021.

You're not going to find many utility companies on the index that provide this kind of growth, especially one that offers a rock solid dividend to go along with it.

Algonquin, at the time of writing, yields around 3.70%. In terms of earnings this works out to be a payout ratio of around 90%. That might seem a bit high to some investors.

However, with a dividend growth streak of 9 years, the company has proven to be capable of consistently raising its dividend. In fact, Algonquin is one of the few Canadian Dividend Aristocrats that raised the dividend during the COVID-19 pandemic.

Algonquin is a top 5 holding in one of Canada's biggest utility ETFs, and pays its dividend in US dollars, providing an even more attractive proposition to Canadian investors.

AQN.TO 5 year performance vs the TSX:

Market Cap: $12.8 billion
Forward P/E: 22.82
Dividend Growth Streak: 9 years
Payout Ratio (Earnings): 90%
Payout Ratio (Free Cash Flows): Premium Members Only
Payout Ratio (Operating Cash Flows): Premium Members Only
1 Yr Div Growth Rate: 10.00%
5 Yr Div Growth Rate: Premium Members Only
Stocktrades Growth Score: Premium Members Only
Stocktrades Dividend Safety Score: Premium Members Only