Tag Archives: TSX:BEP.UN

High-Yield Utility That Has Fallen Off Everyone’s Radar

Summary

  • 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

Which Utilities to Buy On The Utilities Dip?

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.

Because of the dip, I reviewed the 30 utilities in The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) to see if there are treasures to be found. I filtered down to one utility that has had stable, growing earnings for more than a decade.

Southern Co, a Stable Utility with 5% Yield

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.

Southern Co. fundamental analysis graph

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%.

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