Re-Energize Your Portfolio With This Dividend Stock

As the renewable energy boom continues, income investors looking for a mix of yield and growth from their equity investments should take a closer look at the renewable energy industry, and in particular high-yielding Brookfield Renewable Partners LP . The stock is an example of a high-yield Master Limited Partnership with a 4.7% yield and significant growth potential. Renewable energy is a growth industry that is still in its early stages, but the combination of increasing demand for renewables, along with falling costs, means the industry could be attractive for investment. Even income investors have reason to consider the renewable energy industry with names such as Brookfield. Full of Energy Brookfield Renewable Partners is not your average Master Limited Partnership. Most MLPs come from the energy sector. Oil and gas companies, particularly in the upstream and midstream segments, typically use the MLP structure. But not all MLPs are oil and gas companies -- Brookfield Renewable Partners LP operates one of the world's largest portfolios of publicly-traded renewable power assets. Its portfolio consists of about 19,000 megawatts of capacity in North America, South America, Europe, and Asia. Brookfield Energy Partners trades with a market capitalization of $14 billion. Brookfield Renewable Partners has $50 billion of total assets. Approximately 74% of generation capacity comes from hydroelectricity, although this will change somewhat going forward after the company's upcoming acquisition of TerraForm Power . Brookfield Renewable Partners recently announced it will acquire the remaining 38% or so of TerraForm that it does not already own. This deal expands Brookfield Renewable Partners' reach by diversifying it further into wind and solar. Diversification will help continue the company's growth, as previously Brookfield Renewable Partners was significantly overweight hydroelectric power in terms of its portfolio mix. Going forward, roughly two-thirds of Brookfield Renewable's cash flow will be derived from hydro, with the remainder split between wind and solar. Separately, the company recently acquired a 50% stake in X-Elio, a private, leading global solar developer, while it invested a total of $2 billion (12% of its market cap) in new growth projects in 2019. Therefore, Brookfield Renewable Partners has used a mix of acquisitions and internal growth investments to fuel its future growth. We expect Brookfield Renewable Partners to continue growing funds from operations at a meaningful pace over the coming years, which will benefit investors through increased cash distributions. Growth and Distributions Flow Brookfield Renewable Partners has generated steady growth for several years, benefiting from the continued rise in demand for renewable energy. In early February, Brookfield Renewable Partners reported financial results for the fourth quarter of fiscal 2019. In the year, the company's share of actual generation rose 1.1% while its long-term average generation capability (which represents how much electricity would be generated if all of the company's assets generated electricity at their long-term average levels) rose 1.3%. Normalized funds from operations per unit grew 13%, from $2.16 in 2018 to $2.45, thanks to the contribution from recent acquisitions and recently commissioned facilities. Unitholders have benefited from the company's strong growth, through a high yield and growing payouts. In early 2020, Brookfield Renewable Partners increased its quarterly distribution by 5%, bringing its forward payout to $2.17 per unit. This represents a strong current yield of 4.7%, which is more than double the average dividend yield of the S&P 500 Index right now. Even better, Brookfield Renewable Partners has demonstrated strong growth in distributions over the past several years. For example, since its IPO in 1999, the company has grown its distribution at an annual rate of 6%. Importantly, Brookfield Renewable Partners maintains a strong balance sheet, another critical distinguishing factor from the broader MLP peer group. Whereas many oil and gas MLPs are struggling under the weight of heavy debt burdens, Brookfield Renewable Partners has a BBB+ credit rating, which puts it near the top of the MLP class. Furthermore, it has an average project debt term to maturity of 10 years, with no significant maturities over the next five years. With an annualized distribution of $2.17 per unit, and normalized fund-from-operations-per-unit of $2.45 in 2019, Brookfield Renewable Partner's payout is sufficiently covered. The company achieved a distribution coverage ratio of 89% in 2019, which leaves some cushion in the event the company's FFO takes a hit during a recession. Fortunately, a strong balance sheet gives it ample room to access the capital markets, as Brookfield Renewable Partners has $3.1 billion of available liquidity. Therefore, it is highly likely the company successfully navigates a recession, and emerges on the other side with its growth potential intact.

Re-Energize Your Portfolio With This Dividend Stock

Brookfield Renewable Partners has a high yield and growth in renewable energy.

Columnist Conversation

Fed: What I'm Focused on and Expect Wednesday

Wednesday Morning Fibocall for 1/26/2022

Tuesday Morning Fibocall for 1/25/2022

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.