Renewable energy is big business, and it’s only going to get bigger. While some investors have been busily eyeing the uranium space, others have been looking at areas considered safer, more natural, and more truly renewable. From wind and hydro to solar and thermal, there are some wide-moat options out there in a highly regulated industry practically impervious to sudden renegotiation and sourcing its wealth from technically infinite natural processes.
A yield of 5.76% makes Brookfield Renewable Partners (TSX:BEP.UN)(NYSE:BEP) one of the highest-paying such energy stocks on the TSX and a worthy addition to a renewables portfolio. Its high yield and slew of defensive qualities make it a strong choice for a Tax-Free Savings Account (TFSA) or other long-range savings plan, with plenty to recommend it to the new investor or retirement stock picker.
Pros and cons of getting invested
With Brookfield Renewable Partners, you’re getting a high-returning stock that easily outperformed the renewable energy industry in the last 12 months with a 24.5% total return in the past year. Taken over the past five years, the company has returned 102.9%, easily beating the industry, which itself returned 41.5%, and the TSX index itself, which rewarded patient investors with total returns of just 17.4%.
The risks to holding Brookfield Renewable Partners are several and relate to debt, over-reliance on one particular form of renewable energy, and the potential for geopolitical disruption. While any one of these might be a red flag for a dividend investor looking to stay as defensive as possible and eliminate debt from a forever portfolio, taken all together, they may represent a considerable headache.
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A stable, long-range buy for income and growth
Let’s take the threats to the dividend distribution one at a time. First of all, a fairly high level of debt is costing Brookfield Renewable Partners dearly to service. Second, with 70% of its funds from operations coming from hydro plants, a bad year for water levels could see a dip in operational output and income. Finally, with around 35% of its income sourced in Brazil and Colombia, geopolitical tensions could cause unforeseen headwinds.
However, the latter scenario, while potentially disruptive, is unlikely, given electricity production’s defensive stature as a recession-ready infrastructural necessity. In terms of debt, its 57% comparative load is actually on the lower end of the spectrum for an energy supplier. And to counter the hydro-heavy argument, steps are being taken to build other sources of business, with the company’s recent stake in solar energy business X-Elio being a prime example.
If you’re looking to add a stable renewables stock to a TFSA or Registered Retirement Savings Plan, it’s best not to wait for a dip to do so. That’s because a stock like Brookfield Renewable Partners is a “forever stock,” an investment made for the long-term, rather than quick capital gains. As such, it’s worth snapping up even at its current valuation, which still offers an attractive yield set to grow 5-9% annually.
The bottom line
As a quick way to diversify the energy section of your TSX stock portfolio, Brookfield Renewable Partners adds instant defensive backbone while immediately boosting your passive income. Sourcing its wealth generation from perpetual, low-maintenance assets, and committed to diversifying its sources and growing its dividend, this stock is a must-have for the long-range energy investor.
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 Victoria Hetherington has no position in any of the stocks mentioned. Brookfield Renewable Partners is a recommendation of Dividend Investor Canada.