Brookfield Renewable Energy Partners LP Looks Attractive

Utilities like Brookfield Renewable Energy Partners LP (TSX:BEP.UN)(NYSE:BEP) provide the most stable kind of income because everyone uses electricity. Today, the business offers a 6.3% yield that’s expected to grow 5-9% a year.

| More on:
The Motley Fool

Brookfield Renewable Energy Partners LP (TSX:BEP.UN)(NYSE:BEP) is a renewable energy business that generates 80% of its power via hydroelectric stations and 18%  of its power via wind-power facilities.

After falling close to 18% from its 52-week high of $42, Brookfield Renewable looks attractive at about $34.50 per unit and a 6.3% yield.

Assets

The utility owns and manages 207 hydroelectric facilities, 37 wind facilities, three biomass facilities, and two natural gas-fired plants. These assets have the capacity to generate over 7,200 megawatts (MW) of power and annual generation of over 25,700 gigawatt hours (GWh) based on long-term averages.

Strong cash flows for solid income

The business strives to maintain stable and high-quality cash flows from a diversified portfolio of low operating costs and long-life assets that sell electricity under long-term contracts. About 90% of its cash flows are contracted with a 17-year average contract term. Stable cash flows lead to stable income for unitholders.

Expected distribution growth and total return

Over the next five years Brookfield Renewable plans to invest US$500-600 million each year and targets to deliver long-term total returns of 12-15%. Cash distributions that are paid out in U.S. dollars are expected to grow 5-9% on average each year.

Brookfield Renewable has paid a growing distribution since 2011. In four years the distribution grew 23%, or 5.3% on average per year. Thanks to the strong U.S. dollar, the units provide an above-average income of 6.3%. Even at parity, it’d still yield 4.8%. The business targets a payout ratio of 60-70%, which keeps the distribution safe.

Strong financial profile

Brookfield Renewable has an S&P credit rating of BBB. The company has roughly US$19 billion of assets and a debt-to-cap ratio of 43%. Roughly 75% of its borrowings are non-recourse. Its borrowings have weighted average terms of at least seven years. Further, the business has available liquidity of US$1 billion.

Recent developments

In the quarter that ended on September 30, 2015, Brookfield Renewable agreed to acquire two operating hydroelectric stations in the northeastern United States for US$860 million. The stations have an installed capacity of 292 MW.

The transaction is anticipated to close in the first quarter of 2016, and Brookfield Renewable expects to maintain a roughly 40% interest in the portfolio.

Further, Brookfield Renewable completed refinancing that provided US$135 million of proceeds. The proceeds are considered low-cost capital that can be deployed for growth opportunities.

Additionally, the company is constructing hydroelectric, biomass, and wind projects, totaling to 141 MW. The hydroelectric and biomass projects are in Brazil, and the wind project is in Northern Ireland.

In conclusion

Brookfield Renewable Energy can serve as an incremental part of any dividend portfolio. With its stable cash flows, the utility forecasts to grow distributions 5-9% a year. Investors get to start off with an above-average yield of 6.3%. Today’s price of under $35 is a good entry point. Lower prices would be an opportunity to buy more shares by dollar-cost averaging.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of Brookfield Renewable Energy Partners LP.

More on Dividend Stocks

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Royalty: 3 Fabulous Stocks to Buy Now for Decades of Passive Income

Rogers Communications stock and Canadian Natural Resources stock could pay you dividends for decades to come.

Read more »