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Why This 6.3%-Yield Utility Remains a Top Investment

Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) is an attractive investment with a stable, high income. However, it’s also a compelling total-returns investment.

The shares have retreated 3.3% since it announced its $800 million equity offering on June 6 at $37.55 per unit. The equity offering completed on June 10. It now offers an attractive entry point for a high income with a yield of 6.3% at under $37 per share.

The business

At the end of the first quarter, Brookfield Renewable had 258 power-generating facilities totaling US$27 billion of power assets with operations across 15 markets in seven countries.

It has the capacity to generate about 10,400 megawatts of power. It generates 87% of its power from its hydroelectric portfolio and 12% from its wind portfolio.

It earns 65% of its cash flows from North America, 20% from Brazil, 10% from Colombia, and 5% from Europe.

About 90% of its revenues are contracted with inflation escalations, which makes its cash flows stable across different economic cycles. This makes a stable distribution.

Growing distribution

Brookfield Renewable has increased its distribution every year since 2012. Its annualized distribution growth has been 5.7% since then.

The company aims to grow its distribution by 5-9% per year from organic growth and proprietary project development. Its most recent acquisition was Isagen’s 3,000-megawatt Colombian hydroelectric portfolio. As of May, Brookfield Renewable and its institutional partners owned about 83% of Isagen.

In the first quarter, Brookfield Renewable increased its distribution by 7.2%, and its payout ratio was 65.4% based on the funds from operations per unit generated in the three months.

Why invest in Brookfield Renewable?

Brookfield Renewable has an investment-grade balance sheet with an S&P credit rating of BBB. Its debt-to-cap ratio is 38%.

Because Brookfield Renewable operates in a highly regulated environment and significant operating expertise is required, there are high barriers to entry.

Because it invests globally, it can look for the best risk-adjusted investments at any time and account for favourable foreign currency exchange.

The company aims for long-term total returns of 12-15% per year. So, Brookfield Renewable is not just about its juicy 6.3% yield, but it has growth potential as well.

Conclusion

Brookfield Renewable is in fair-value range today. Assuming its multiple remains constant and it achieved the low end of its 12-15% total-returns target for each year, a $10,000 investment today would turn into about $14,050 in three years and about $17,600 in five years.

Most importantly, the utility offers a stable, above-average yield of 6.3% that it aims to grow 5-9% per year. A $10,000 investment will generate $630 of initial annual income.

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

NEW! This Stock Could Be Like Buying Amazon In 1997

For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.

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