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Brookfield Yields 7 Percent on Renewable Energy Boom

Brookfield Yields 7 Percent on Renewable Energy Boom

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Tuesday, 12 February 2019 06:02 PM Current | Bio | Archive

The renewable energy boom is just getting started. As demand for fossil fuels like coal wanes, demand for renewable sources of energy is heating up. Investors with a long-term view could profit from this by investing in some of the larger renewable energy stocks.

Brookfield Renewable Partners LP (BEP) is a high-yield dividend stock offering investors a 7% yield, along with the potential for distribution increases. It is optimally positioned to capitalize on a major trend—the renewable energy revolution—and is an especially attractive stock for income investors.

Business Overview

Brookfield Renewable Partners is a Master Limited Partnership, or MLP for short, operating in the utility sector. It operates three segments: Wind, Solar, and Hydroelectric. Its portfolio consists of over 17,400 megawatts of capacity and 877 generating facilities in North America, South America, Europe, and Asia. The largest segment of the portfolio is Hydroelectric, which represents approximately 76% of its portfolio.

While the renewable energy industry is still at an early stage, Brookfield is highly cash-flow positive, thakns to the strong economics of hydroelectric power. Brookfield has one of the largest hydroelectric businesses in the world, and in the past five years it has doubled its hydrolectric business. Hydroelectric assets benefit from long useful lives, often over 100 years, as well as low operating costs.

In 2018, Brookfield generated 7.5% growth in generation, which led to 16% growth in Funds From Operation, or FFO. On a per-unit basis, FFO increased 14% to $2.16.

Brookfield’s strong cash flow allows the company to invest in new capacity additions, which will fuel its future growth. It also allows Brookfield to reward investors with cash returns. Last year, Brookfield invested $550 million into growth initiatives, including acquisitions, existing project development, and unit buy backs.

Brookfield also rewards investors with a very attractive distribution.

Turning Green Energy Into Green Dollars

Brookfield recently declared a quarterly distribution rate of $0.515 per unit, a 5% increase from the prior distribution. The new annualized distribution rate of $2.06 per unit represents a yield of 7.1%. Even better, Brookfield targets a sustainable distribution with annual increases in a range of 5% to 9%.

One of the factors helping to secure Brookfield’s high dividend is the company’s strong financial position. Brookfield has an investment-grade credit rating of BBB+, which helps lower the cost of capital. And, Brookfield’s average duration of its debt is now 10 years. This will help the company navigate a rising interest rate cycle.

Brookfield’s distribution payout ratio is high at 95% of trailing annual FFO. As a result, investors will need to monitor the company’s quarterly financial reports, to make sure the company continues to grow FFO. Fortunately, Brookfield’s future FFO should continue to grow, as demand for renewable energy continues to grow in the U.S. and internationally.

Brookfield expects to grow FFO by 6%-11% annually through 2023. If it meets this target, it should be able to continue increasing the distribution at a rate aligned with FFO growth. In the meantime, the current 7% yield is backed by sufficient cash flow and a strong balance sheet, making Brookfield a highly attractive stock for income investors.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
The renewable energy boom is just getting started. As demand for fossil fuels like coal wanes, demand for renewable sources of energy is heating up. Investors with a long-term view could profit from this by investing in some of the larger renewable energy stocks.
mlp, profits, renewable, energy
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2019-02-12
Tuesday, 12 February 2019 06:02 PM
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