The bear market has created several opportunities of a lifetime. Many stocks that will ultimately benefit from the downturn have gone on sale. Brookfield Renewable Partners LP (TSX:BEP.UN)(NYSE:BEP) is a perfect example.
As its name suggests, Brookfield Renewable owns a globally diversified portfolio of renewable energy projects. These projects generate large amounts of free cash flow, which helps support a 6% dividend.
Brookfield Renewable’s biggest advantage is that it runs an active portfolio. It can buy and sell projects at will. When prices reach new heights, the company can monetize mature assets. When prices plummet, it can scoop up assets at bargain valuations.
Of course, running an active portfolio is only an advantage if you manage your asset base correctly. An active portfolio does you no good if the firm buys high and sells low.
Thankfully, we have more than a decade of historical data to judge Brookfield Renewable on. The data looks really good. Even better, the company could be poised to make a splash during the coronavirus bear market of 2020.
Beating the bear market
Brookfield describes itself as “a leading global owner, operator, and developer of renewable power assets.” Its portfolio consists of more than $50 billion in assets across 15 countries.
Most important, the firm believes that it has a “…consistent, proven and repeatable strategy” capable of producing long-term returns between 12% and 15%. That’s an incredible claim. Has the stock lived up to the hype?
Since 2006, Brookfield stock has increased by 175%. That’s not even including the annual dividend, which has regularly exceeded 5%. When including both capital gains and dividends, Brookfield has delivered on its promise of long-term annual returns of between 12% and 15%.
The company’s best performances were during bear markets. The last financial crisis is a perfect case study. From the start of 2008 through the end of 2009, a period that encompasses the worst of the crisis, Brookfield stock remained flat. Dividends, meanwhile, never ceased, producing positive annual returns at a time when global indexes were being cut in half.
Here’s the good news: the best is yet to come.
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Now is the time
Brookfield isn’t built for the next few months. It’s built for the next few decades.
Management believes that the “growth of renewables will be larger than anyone expected.” The data suggests that they’re right. Over the past five years, $1.5 trillion was invested in renewable energy generation. That’s already far larger than most people expected.
Over the next five years, investment should ramp even more, reaching $5 trillion. Over the next decade, investment in renewable energy generation is expected to hit $10 trillion. If we’ve learned anything about this opportunity, it’s that even these revised estimates will likely underestimate how big the market will be.
As one of the largest investors in the space, Brookfield already has a cost advantage, but its scale has also given it a rich network to fill their deal pipeline.
The company specializes in early stage projects with asymmetric risk and reward. By investing early, Brookfield can assume a lion’s share of the gains, monetizing the asset once the risk-return profile has normalized. Having a deep network gives Brookfield access to such deals.
Because its projects generate consistent cash flow, the 6% dividend is not in danger. The long-term renewables opportunity, meanwhile, should allow that payout to grow substantially over the coming decade.
Brookfield Renewable isn’t the only cheap stock worth buying. The downturn has created countless deals of a lifetime.
Do the work today to build your bear market buy list. Your portfolio will thank you.
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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 Ryan Vanzo has no position in any stocks mentioned.