Companies part of the renewable energy sector have trailed the broader markets in recent months due to the double whammy of inflation and rising interest rates. As clean energy companies are capital intensive, they require a significant amount of debt to fuel expansion plans.
But since the start of 2022, the central banks have hiked interest rates multiple times, increasing the cost of debt significantly, which negatively impacts profit margins.
However, the worldwide shift towards clean energy solutions is inevitable, making renewable energy stocks a solid long-term bet. Moreover, renewable energy companies, such as Brookfield Renewable (TSX: BEP.UN), generate stable cash flows, allowing them to pay investors a tasty dividend.
Let’s see why Brookfield Renewable Partners is a high-yielding dividend stock to buy now and hold forever.
The bull case for Brookfield Renewable Partners stock
Brookfield Renewable Partners invests in renewable power and sustainable solutions directly as well as with joint ventures and institutional partners. It owns and operates a diversified portfolio of renewable power assets with a capacity of 25,400 megawatts and a development pipeline of 110,000 megawatts.
BEP has been among the top-performing stocks on the TSX, returning over 1,000% to shareholders in dividend-adjusted gains in the past 15 years. Its rapid expansion of clean energy assets allowed the company to increase funds from operations by double digits annually for more than a decade. This, in turn, has enabled Brookfield to increase dividends, strengthen its balance sheet, pursue organic growth opportunities, and target accretive acquisitions.
BEP’s cash flows are contracted and inflation linked. It increased funds from operations, or FFO, by 8% year over year to US$1.56 per unit in 2022, showcasing the resiliency of its business model. This expansion in the bottom line resulted in a 5.5% increase in distributions, which stood at US$1.35 per unit on an annualized basis.
What’s next for BEP stock price and investors?
Brookfield Renewable Partners continues to accelerate development activities and commissioned 3,500 megawatts of new projects that will add US$45 million of FFO on an annual run rate basis. It will also execute its advanced-stage development pipeline, which will increase production capacity by 19,000 megawatts and add US$235 million of FFO once operational.
In the five years, Brookfield Renewable has allocated US$12 billion towards capital expenditures, which should drive dividends and cash flows higher. It currently provides investors access to a diversified base of assets that include utility-scale wind and solar, battery storage, wind generation, and transition investments.
In its shareholder letter, BEP emphasized, “The investment environment for renewables remains highly compelling. Corporate clean energy demand, lowcost energy profile, electrification, and energy independence continue to be key trends accelerating renewable deployment. Our disciplined approach to investing, long-dated history of owning and operating clean energy assets, and access to large-scale capital put us in a leadership position.”
Down 36% from all-time highs, BEP stock currently offers shareholders a dividend yield of 4.5%. Analysts remain bullish on the renewable energy giant and forecast shares to gain 20% in the next 12 months, given consensus price target estimates. After adjusting for dividends, total annual returns will be closer to 25%.
