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. Read More
Brookfield Renewable Energy yields 6.7%, over 1.7% higher than the typical utility that yields under 5%.
The company is riding on the mega-trend train of a global growing demand in renewable energy, and the business has the expertise to bank on acquisition opportunities.
The business forecasts dividend growth of 5-9% per year through 2020 and a long-term shareholder return of 12-15%.
I’m primarily a dividend growth investor. So, current income and growth of that income is important to me.
Utilities are typically known for their high yields. So, buying utilities, I expect a good part of returns to come from their dividends. The lower the price goes, the higher the yield climbs. That’s the case with Brookfield Renewable Energy Partners LP (NYSE:BEP), as it has fallen over 18% from a year ago.
Compared to most other popular utilities, Brookfield Renewable has performed quite poorly price-wise in the past year. The utility group typically yields in the 4-5% range, and Brookfield Renewable stands out by yielding 6.7%. But, perhaps, that’s because it is viewed as higher risk with an S&P credit rating of BBB, while the others all have a rating of A-.
To consider it as a potential utility holding, the question you want answered is probably: “Is Brookfield Renewable Energy’s distribution sustainable?” First, let’s find out if it’s the kind of business you want to own. Read More
I notice some utilities have dipped as much as 20% from their 52-week highs. The dip maybe a rotation of funds out of the typically slower growth utilities sector for the purpose of profit-taking, or maybe investors are worried that interest rate hikes will cause the typical high-yielding utilities to dip further.
Here, I present Southern Co (NYSE:SO), which has a S&P Credit Rating of A, sustainable debt levels, and is trading close to a price-to-earnings ratio (P/E) of 15 priced around $43 per share today.
I believe it’s fairly priced today, hitting the orange earnings line. The blue normal P/E line indicates that it has historically traded at a P/E of 16.
Since 2005, the company has increased dividends by 3-4% per year. I’d say that’s keeping pace with inflation. With a juicy yield of 5%, and growing say at 3% going forward, it should keep pace with general market returns of 7%.