Advertisement
Canada markets closed
  • S&P/TSX

    21,639.10
    -59.01 (-0.27%)
     
  • S&P 500

    5,431.60
    -2.14 (-0.04%)
     
  • DOW

    38,589.16
    -57.94 (-0.15%)
     
  • CAD/USD

    0.7281
    +0.0001 (+0.02%)
     
  • CRUDE OIL

    78.49
    -0.13 (-0.17%)
     
  • Bitcoin CAD

    90,930.08
    -52.65 (-0.06%)
     
  • CMC Crypto 200

    1,403.34
    -14.54 (-1.03%)
     
  • GOLD FUTURES

    2,348.40
    +30.40 (+1.31%)
     
  • RUSSELL 2000

    2,006.16
    -32.75 (-1.61%)
     
  • 10-Yr Bond

    4.2130
    -0.0250 (-0.59%)
     
  • NASDAQ

    17,688.88
    +21.32 (+0.12%)
     
  • VOLATILITY

    12.66
    +0.72 (+6.03%)
     
  • FTSE

    8,146.86
    -16.81 (-0.21%)
     
  • NIKKEI 225

    38,814.56
    +94.09 (+0.24%)
     
  • CAD/EUR

    0.6798
    +0.0024 (+0.35%)
     

TSX Domination: The 6.44 Percent Dividend Stock to Watch

Man holding magnifying glass over a document
Image source: Getty Images.

Written by Adam Othman at The Motley Fool Canada

Dividend investing is one of the best strategies for generating higher returns on capital in the stock market. The TSX is full of high-quality dividend stocks with excellent track records for paying their investors shareholder dividends. There are a ton of Canadian Dividend Aristocrats that also boast a long history of hiking payouts to investors each year.

Investing in Dividend Aristocrats means these investments can grow your passive income to match inflation. By remaining invested for a long time and reinvesting the dividends, you can also use these stocks to fast-track your wealth growth through the power of compounding.

ADVERTISEMENT

While there are plenty of go-to large-cap dividend stocks, a few mid-cap stocks offer the opportunity for growth through significant long-term capital gains.

The 6.44% dividend yield stock to watch

Capital Power (TSX:CPX) is a $4.95 billion market capitalization independent power-generation company headquartered in Edmonton. Operating in North America, it has around 30 power-generation facilities generating power through wind, gas, and solar power plants across Canada and the United States. It has a 7,700 megawatts (MW) of electricity generation capacity, with projects in the pipeline that will increase it by 4,700 MW.

The company spends about 40% of its adjusted funds from operations to fund its distributions to investors, allocating the rest to repay its debts, improve its existing plants, and acquire more. Despite the high interest rate environment, the company’s management has managed to keep good control over its debt to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Its strategy to spread the debt over the long term, the company has kept maturities manageable. The approach has allowed Capital Power stock to increase its dividend by 6% in a market environment where other renewable energy companies were forced to slash payouts.

However, the weakness in the broader renewable energy industry caused its share prices to drag. As of this writing, Capital Power stock trades for $38.21 per share, boasting an inflated 6.44% dividend yield.

Foolish takeaway

Due to strong cash flows and manageable debt maturities, Capital Power stock is faring better than many other renewable energy stocks. The company’s management plans to grow payouts to shareholders by an average of 6% per year till 2025.

Meanwhile, its closest rival TransAlta Renewables was forced to merge with its parent company. The recent industry-wide troubles also saw Algonquin Power & Utilities sell off its renewable energy segment to raise capital. While its competitors struggle to stay in business within the segment, Capital Power stock is thriving in the renewable energy industry.

As of this writing, Capital Power stock trades at an 18.03% discount from its 52-week high. Investing in its shares right now can help you lock in higher-than-usual-yielding dividends and capture significant capital gains when share prices recover.

If you choose a dividend-reinvestment plan, you can unlock the power of compounding to accelerate your wealth growth through its growing payouts.

Considering the favourable conditions, Capital Power can be an excellent stock to consider adding to your self-directed portfolio right now.

The post TSX Domination: The 6.44 Percent Dividend Stock to Watch appeared first on The Motley Fool Canada.

Should you invest $1,000 in Capital Power right now?

Before you buy stock in Capital Power, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Capital Power wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $18,271.97!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.

See the 10 stocks * Returns as of 5/21/24

More reading

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2024