A High-Yield Play on Renewable Energy Growth

Renewable energy is set to be one of the major growth industries of the new decade. Adoption of renewable energy sources such as wind and solar is accelerating rapidly in the U.S. and around the world. For investors looking to capitalize on the coming renewable energy boom, we have just the name for you. Brookfield Renewable Partners is a very attractive stock, particularly for income investors. It's high dividend yield is more than double the average stock in the S&P 500 Index. What's more, Brookfield Renewable has a strong track record of growth over the last several years. Future growth is likely as demand for renewable energy only continues to rise. As a result, income investors looking for a bit of growth potential should take a closer look at this high yield stock. Business Overview and Growth Brookfield Renewable Partners is a Master Limited Partnership, or MLP. It operates one of the world's largest portfolios of publicly traded renewable power assets, consisting of over 17,000 megawatts of capacity and 880 generating facilities in North America, South America, Europe, and Asia. Brookfield Renewable has exposure to a wide range of generation including wind and solar, but nearly three-quarters of its generation comes from hydroelectric power. Brookfield Renewable is one of four publicly traded listed partnerships that are operated by Brookfield Asset Management . The others are Brookfield Property Partners , Brookfield Infrastructure Partners , and Brookfield Business Partners . Brookfield Renewable has total assets of nearly $50 billion, and the stock trades with a market capitalization of $14.5 billion. In mid-November, Brookfield Renewable reported financial results for the third quarter of 2019. The partnership's share of actual generation fell 6.1% while its long-term average generation capability (which represents how much electricity would be generated if all of its assets generated electricity at their long-term average levels) decreased 2.3% due to asset sales. For example, the partnership sold two mature European wind portfolios for $186 million, on which it achieved an 18% compounded annual return since acquisition. Still, Brookfield Renewable grew its share of actual generation by 7.3% over the first three quarters of 2019. This was an impressive performance, as it was able to produce growth even with the divestments over the course of the year. Normalized funds from operations (FFO), a popular measure of cash flow, increased 30% on a per-unit basis for the third quarter. This was due to organic growth as well as contributions from recent acquisitions. FFO per unit increased 27% over the first three quarters of the year. We believe future growth is very likely. The broader growth of the renewable energy industry provides a significant tailwind for Brookfield Renewable. Because of this, it is heavily investing in new projects. The partnership recently announced its investment in a joint venture of a global solar developer with more than 6,500 megawatts of solar power. Investing in Renewable Energy Pays Big Dividends The renewable energy industry has seen explosive growth over the past several years. According to Brookfield Renewable, $1.5 trillion has been invested in renewable energy sources globally over the past five years. This has created one million megawatts of new generating capacity. Growth has been driven by global carbon reduction targets, as well as falling costs of production. Because of these core factors, we believe there is potential for continued growth over the next several years. Coal and natural gas still comprise roughly 45% of capacity in North America and Europe. But generation of coal and gas has fallen steadily since 2012, and is projected to continue declining through 2030. Multiple growth opportunities exist to capitalize on these industry dynamics, both in the U.S. and internationally. For example, Brookfield Renewable will generate 4,800 megawatts of solar capacity currently in its development pipeline. In the meantime, the company generates sufficient cash flow to reward investors with a competitive dividend. The company has a current annualized distribution of $2.16 per unit, which works out to a 4.7% yield. And thanks to Brookfield Renewable's strong FFO growth, it has the ability to raise its distribution at a compelling rate. Brookfield Renewable targets annual distribution growth of 5%-9% on average annually. The distribution appears safe for the long-term. The partnership distributed approximately 81% of FFO per unit over the first three quarters of 2019, which is not unusually high for an MLP. Meanwhile, Brookfield Renewable has a relatively strong balance sheet with a credit rating of BBB+, which makes it one of the highest-rated MLPs. With an average debt duration of 10 years, we do not foresee debt being a problem for the foreseeable future. Final Thoughts The renewable energy industry has enjoyed rapid growth in the last five years, as the world turns away from fossil fuels. The steady shift toward renewable sources such as hydroelectricity, solar and wind should only continue in the years ahead. As a global producer, we believe Brookfield Renewable stands on the forefront of the renewable energy boom. The partnership should see continued growth for many years, and in the meantime the stock pays investors a high yield of 4.7%. The distribution payments should grow each year, making Brookfield Renewable an attractive stock for income investors.

A High-Yield Play on Renewable Energy Growth

For investors looking to capitalize on the coming renewable energy boom, this MLP is very attractive.

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