Take advantage of the ESG trend
The first business is TransAlta Renewables (TSX: RNW). This TSX stock has rebounded considerably since its March lows, but I still think it is a buy. RNW has 44 renewable energy facilities in Canada, the United States and Australia. Its assets are mainly a mixture of wind power and natural gas, but it is also exposed to hydroelectricity and solar energy. All RNW assets have an average life of 11 years. Its counterparts include quality companies such as Microsoft and quality government services like Ontario Power.
I like this stock for several reasons. First, among the main renewables on the TSX, RNW posted the highest yield, at 6.4%. Most of his peers report 4% or less. Low interest rates and demand for ESG investments have given the sector increasing popularity. I don’t see this trend coming to an end anytime soon.
Second, although RNW has not increased its dividend in two years, its particular expertise in wind power should create prospects for growth. Large companies and municipalities are constantly looking to make clean energy a basic energy source, which bodes well for RNW.
Cash in with this TSX share
Management currently sees a 2,000 MW pipeline of development / acquisition opportunities. RNW has significantly lower leverage than its peers, which gives it great financial flexibility to pursue these acquisitions. Of TransAlta (its sponsor) alone, RNW could potentially take over $ 500 million in revolving assets.
While the growth potential remains to be seen, the dividend of the company is well funded with a payout rate of 85%. If you are an income investor, this security will pay you consistently and generously while you wait for growth.
TSX REIT stocks are cheap
The second TSX title which is an intriguing purchase is Dream Industrial REIT (TSX: DIR.UN). Of these two choices, it is more risky, but it also has a lot higher.
DIR owns 26 million square feet of single and multi-tenant industrial properties in Canada, the United States and Europe. When the TSX collapsed in March, DIR’s shares also fell from a cliff, losing 50% to its lowest point. It rebounded by 30% but is still trading at a very attractive price and yields 7.5%.
Fortunately, DIR is better positioned as a business than it has ever been. Since 2018, the REIT has geographically diversified its asset mix, focusing on better quality markets (such as Toronto and Montreal), and has reduced leverage from 43% (net debt / asset ratio) to 24 %.
Clearly, the main concern right now is what effects the coronavirus crisis will have on its tenants and rents. Management has yet to publicly report negative concerns. In a March update, DIR said it has $ 441 million in cash and another $ 150 million in cash. It’s a nice advantage right now.
With a wide range of more than 1,000 different small and large tenants, there is a risk that some tenants will encounter financial difficulties and request rent deferrals or temporary allowances. DIR may face temporary pain for the next few quarters, but I think overall it will be minimal.
Buy for the long term
Dream Industrial has a good management platform, a solid balance sheet and the financial and operational capacity to cope with difficult quarters. Plan to buy Dream Industrial with courage, patience and a long-term perspective, and you might see that title easily outperform the long-term TSX.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of the board of directors of The Motley Fool. Fool contributor Robin Brown holds shares in DREAM INDUSTRIAL REIT. The Motley Fool owns shares of Microsoft and recommends Microsoft. The Motley Fool recommends DREAM INDUSTRIAL REIT and recommends the following options: long calls from January 2021 to $ 85 on Microsoft and short calls from January 2021 to $ 115 on Microsoft.