The Motley Fool

Get a Safe and Growing Income From Brookfield Renewable Energy Partners LP

Power generation is an indispensible service. Over 20 years ago, Brookfield Renewable Energy Partners LP (TSX:BEP.UN)(NYSE:BEP) started investing in hydro power generation. Today, hydroelectric generation is the highest valued renewable asset class.

Further, Brookfield Renewable Energy uses wind energy as a low cost source of renewable power generation to complement its hydro portfolio. Nine years ago, the company developed its first wind farm. Today, Brookfield owns 28 operating wind farms, with a capacity of roughly 1300 megawatts, across four countries.

About Brookfield Renewable Energy Partners
Brookfield Renewable Energy is one of the world’s biggest pure-play renewable power businesses. The company has US$20 billion of power assets, consisting of 234 power-generating facilities that can generate up to 6,700 megawatts of power.

Brookfield’s power-generation business is diversified geographically in the United States, Canada, Brazil, and Republic of Ireland, and Northern Ireland; 85% of the power is generated by the company’s hydroelectric generation located on 72 river systems.

Dividend history and growth
Brookfield’s distribution of $0.415 per share per quarter, or a 5.1% yield, is secure. It is a payout of 65% of its funds from operations. This yield is supported by the company’s stable cash flow.

Of the company’s current output, 91% is sold under long-term contracts. Although the percentage of the long-term contracts is expected to decrease to 82% by 2019, the contracts will still provide the majority of the cash flow.

Since December 2011, Brookfield has raised its distributions from US$0.3375 per share per quarter to US$0.415 per share per quarter. This is a growth of 23% in a little more than three years. Using a four-year period, it turns out to be 5.3% annualized growth.

The company also intends to maintain a payout ratio of 60-70%, and to grow distributions at a rate of 5-9% annually.

Because not the whole distribution is considered eligible dividend, only buy Brookfield shares in the TFSA or RRSP to avoid the tax hassle.

What can investors expect in the future?
I believe the company is fully valued currently, meaning that Brookfield is neither cheaply priced nor expensive. Its high yield of 5% is partly due to the strong U.S. dollar as of late. So, if the oil price rebounds, and the Canadian dollar strengthens, the yield will be reduced due to the foreign exchange. However, the distribution growth should offset some of that.

In addition, Brookfield’s business model is solid. It provides a needed service and have long-term contracts. Brookfield also intends to invest US$500 million to US$750 million over the next five years at targeted returns of 15% to 20%. The investments are funded by its cash flows.

In conclusion, investors looking for exposure in the green utilities space should consider Brookfield Renewable Energy Partners’ investable grade (BBB credit rating) shares for safe income.

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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 doesnt own any stocks mentioned in the article.

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