Utility With A 6.5% Yield And 12-15% Total Return Potential

Brookfield Renewable Energy Partners LP (TSX:BEP.UN)(NYSE:BEP) generates stable cash flows from a predominately hydroelectric portfolio, complemented by wind-power generation. It yields 6.5%, targets long-term total returns of 12-15%, and targets 5-9% distribution growth per year. Its 2015 setbacks were mainly due to hydrology and the strong U.S. dollar. Its recent acquisition of Isagen in Colombia is immediately accretive, and should help drive long-term growth.

Brookfield Renewable is a pure-play renewable energy platform which operates in North America, Latin America, and Europe. It has about $20B of assets, including 207 hydroelectric generating facilities, 37 wind facilities, 3 biomass facilities, and 2 natural gas-fired plants. Its assets have 7,284 MW of generating capacity and annual generation of 25,766 GWh based on long-term averages.

Its portfolio is focused on hydroelectric generation (81%), complemented by wind-power generation (17%). The company generates 50% of cash flows from the U.S., 25% from Canada, 20% from Brazil, and 5% from Europe. About 90% of its cash flows are contracted with a weighted-average remaining duration of 17 years (of which 84% are investment grade clients), which provides long-term cash flow stability.

I particularly like Brookfield Renewable’s value investing mindset. It takes a contrarian view and long-term approach to investing by looking for undervalued opportunities. It continues to work on building a global portfolio of renewable generation assets in markets that are either replacing legacy thermal facilities or where supply has not kept up with historical demand growth.

Its most recent acquisition is Isagen S.A., which is Colombia’s third-largest power generation company. Isagen owns and operates 7 plants and accounts for 20% of the country’s annual production. Of Isagen’s 3,000 MW capacity, 90% is hydroelectric. Additionally, there’s growth potential in Isagen’s project development pipeline.

Isagen was a timely investment because Colombia’s currency has fallen 40% in the last year. Integrating Isagen’s assets with Brookfield Renewable’s, Brookfield’s portfolio would be 86% hydroelectric generation and 11% wind-power generation. As well, it’d generate 69% of FFO from North America, 27% from Latin America (of which 4% is from Isagen), and 4% from Europe.

Most importantly for dividend investors, Brookfield Renewable yields about 6.5% and targets to grow its distribution by 5-9% per year going forward.

This is primarily an excerpt from this Seeking Alpha article: Utility With A 6.5% Yield And 12-15% Total Return Potential

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Disclosure: At the time of writing, I’m long TSX:BEP.UN.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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