Why Brookfield Renewable Energy Partners L.P. Belongs in Every Portfolio

One company that is an increasingly appealing investment, particularly for income-hungry investors is Brookfield Renewable Energy Partners L.P. (TSX:BEP.UN)(NYSE:BEP).

You see, the move to reduce greenhouse emissions and sharply reduce the consumption of fossil fuels globally has caused the demand for renewable sources of energy to soar. This will be a powerful tailwind for Brookfield Renewable Energy because of its scale, diversified portfolio of renewable energy assets, and organic growth opportunities. 

Now what?

Brookfield Renewable Energy owns and operates a diversified portfolio of renewable energy assets across three continents with operations in Canada, the U.S., Brazil, Colombia, Ireland, and Portugal. These assets have installed capacity of over 10,000 megawatts with the core of its operations focused on hydroelectricity; hydroelectricity is responsible for generating 87% of its output. These attributes make it one of the largest publicly listed pure-play renewable energy companies accessible by investors.

What makes Brookfield Renewable Energy stand out as an investment opportunity is its wide economic moat. The renewable energy industry has steep barriers to entry that minimize competition and help to protect its growth prospects.

Furthermore, its earnings are virtually guaranteed with 90% of its revenue contractually locked in, which helps to make its cash flow steady and predictable.

Then there are Brookfield Renewable Energy’s impressive growth prospects; the partnership has considerable liquidity with US$1.3 billion in cash and undrawn credit from its credit facilities. This leaves it well positioned to make further opportunistic transactions, such as the purchase of the Colombian government’s majority stake in hydroelectric company Isagen S.A. earlier this year for $2.8 billion as part of a consortium led by its parent, Brookfield Asset Management Inc..

Brookfield Renewable Energy also has a solid pipeline of projects under development, including a 15 megawatt wind facility in Northern Ireland, a 20 megawatt wind project in Scotland, and the construction of 72 megawatts of hydroelectric facilities in Brazil. On completion, these will boost its ability to take advantage of the growing demand for electricity generated from renewable sources.

Nonetheless, the most powerful driver of Brookfield Renewable’s growth will be the secular trend to eliminate fossil fuels from the global energy mix and replace them with renewable sources of energy. Already, a number of governments have established aggressive clean energy and carbon-emission-reduction targets. Many governments, including the government of Alberta, are regulating coal-fired power generation out of existence and increasing the financial incentives for renewable energy companies.

Clearly, this bodes well for Brookfield Renewable Energy. It will be able to expand its operations and grow its revenues, which will give its cash flow and bottom line a healthy bump.

Brookfield Renewable Energy, with its tasty 6% yield, is especially appealing for income-hungry investors, and with its distributions representing 62% of its funds flow from operations, they remain sustainable. It also has an impressive history of growing these distributions; it has hiked them for the last five years straight, which bodes well for further increases.

So what?

Brookfield Renewable Energy remains a solid pick for any investor seeking to take advantage of the secular trend to renewable energy. It has a wide economic moat and this–along with the majority of its cash flows being contractually locked in–makes it earnings predictable.

Then it is worth considering that it is well positioned to continue growing, management is focused on expanding its asset base, and–along with the powerful tailwind provided by the secular trend to renewable energy–this will drive earnings higher.

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Fool contributor Matt Smith has no position in any stocks mentioned. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.

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