Canadian investors interested in ESG investing might consider renewable energy stocks for more than their profitability potential. They may even assess these stocks from a broader perspective, including the environmental impact of the underlying companies in the evaluation process.
However, from an investment perspective, the primary focus should be the return potential of renewable stocks, and in that regard, three Canadian renewable stocks might surprise you.
A negative surprise
Algonquin Power & Utilities (TSX:AQN) has been in trouble for a while. Its ill-managed debt finally caught up to the company a few years ago, and it took the company selling part of its business and brutally slashing its dividends (among other things) to remain financially viable.
The general idea was that since it has already cut its payouts at the cost of alienating many of its investors, the company is unlikely to do so again.
Unfortunately, that's precisely what the company did. It slashed its dividends again quite significantly, and it's selling a significant part of its renewable energy business to remain ahead of its debt.
To most of its investors, it's less of a surprise and more of a shock. Naturally, the stock took a huge dive and fell 17.5% in less than a week. So, it's safe to remain clear of this stock.
A Toronto-based power producer
Northland Power (TSX:NPI) was established in 1987 and is an international developer of green energy assets. Its current portfolio of power-producing assets is spread out over multiple countries/regions, though the highest concentration is in North America. The total output capacity is 3.4 GW, with another 2.4 GW under construction.
About 90% of its revenues comes from contracted assets, leading to high financial stability. This is reflected in its dividends as well, as the company has stuck to a $0.1 payout per share per month for years. The dividends, at 5.1%, are the most stable and predictable part of this stock. However, after nearly five years of steady (and one sharp) decline, the stock may surprise you with fast-paced growth in the future.
A renewable energy giant
Brookfield Renewable (TSX:BEP.UN) has a market capitalization of $22 billion and assets on an entirely different level than most other Canadian renewable energy stocks. Its operational wind farms (total output 11.3 GW) have more than three times the output of Northland Power's complete portfolio. The overall operational power output is close to 27 GW.
The assets under development are even more impressive, and if we add that to the total, the company has an output capacity of 200 GW. The stock is quite stable, but the same cannot be said for the dividends, as it was also among the companies that slashed its dividends during the pandemic.
However, it started raising them right away, and the current payout is quite close to the dividend before it was cut in 2020. The current yield is 5.8%.
Foolish takeaway
The renewable energy bear market is not showing any signs of recovery, but that may change with suitable catalysts. Algonquin has a lower outlook, but the other two may surprise you with a solid growth spurt. Until that happens, you can benefit from their dividends.
