At first glance, it might seem crazy to recommend a renewable energy company considering that Donald Trump is going to be president of the United States, but in actuality, I think it is an incredible time to buy Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP). And if the company grows the dividend like it predicts it will, it could become the hero everyone’s portfolio needs.
Brookfield Renewable has a large network of renewable assets with the vast majority in hydroelectric power. All told, it generates 10,700 MW in total from 215 hydroelectric facilities as well as some wind, biomass, and other assets. Further, it has approximately 160 MW in construction with an additional 7,000 MW in its development pipeline. Each year, the company develops an additional 300 MW and has a team of about 2,000 people who manage the assets, so there’s no need to outsource.
This is a significant detail because Brookfield Renewable is currently attempting to buy TerraForm Power Inc. (NASDAQ:TERP) in a deal valued at US$1.8 billion. This would give it exposure to 3,000 MW of wind and solar power. But the problem for TerraForm (besides the obvious debt issues from its parent company) is that it had outsourced 100% of its operations and maintenance, which eats into margins considerably.
At Brookfield Renewable’s Investor Day, Sachin Shah, CEO said, “we can run the assets, we can do the O&M in-house, we can reduce the cost structure of this business, and we can ultimately reposition it for growth in the future.”
Whether or not the deal will happen remains to be seen. TerraForm is soliciting bids until January, and there are certainly other interested investors, but Brookfield Renewable’s bid of US$13 a share is higher than where it recently closed and far higher than when Brookfield Renewable first revealed it had a stake in the company back in June, so investors might be unwilling to go much higher.
Brookfield Renewable is also currently working to finish acquiring the remainder of Isagen S.A., one of Colombia’s largest hydroelectric companies. Since January, Brookfield Renewable and institutional partners have been acquiring it, accumulating 84% of it thus far. And now it is attempting to buy the remaining 16%. Should this deal go through, Brookfield Renewable will own 25% of the company, which generates 3,032 MW of electricity.
All of the growth and acquisitions allow the company to be an incredible dividend stock. Management is looking to see growth of anywhere from 5-9% in cash distributions and, so far, it has been doing quite nicely. In 2012, Brookfield Renewable paid out US$1.38 per year in dividends. Fast forward to 2016, and the dividend was up to US$1.78.
How much higher can the dividend go? If it follows in line with the February 2016 increase of 7%, the yearly distribution would be US$1.90. The highest it could go, if management hits the growth target 9%, is US$1.94.
With the current yield of 6.1% and the potential for the dividend to increase by another 7% (give or take), I think that Brookfield Renewable Partners has the potential to be an incredible dividend hero. I believe buying at this point in time is a great opportunity.
