The Canadian stock market is a good benchmark to compare Canadian stocks with. For example, I believe cash-gushing dividend stock Brookfield Renewable Partners (TSX: BEP.UN) has an excellent chance of beating the Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy. The utility stock pays out about US$246 million in dividends every quarter. Any Canadian investor can grab their share.
Earn more income
First, the Canadian stock market exchange-traded fund (ETF) offers a distribution yield of about 3.4% at writing. In comparison, Brookfield Renewable Partners offers a cash distribution yield of close to 5.2% — just over 50% more income than what the ETF provides.
Importantly, the renewable utility has a track record of increasing its cash distribution by about 13 consecutive years. Its 10-year cash-distribution growth rate is 5.7%. So, investors can expect an upcoming dividend hike in February based on its usual schedule. Management is devoted to continue making healthy dividend increases of 5-9% per year.
Build greater wealth
Some investors prioritize total returns over income generation. Brookfield Renewable doesn’t disappoint in this aspect either. For example, it has outperformed the Canadian stock market in the last five and 10 years. BEP.UN’s annualized returns in the last five and 10 years were approximately 15% and 16%, respectively, versus the market’s returns of approximately 8% in the periods.
BEP.UN and XIU Total Return Level data by YCharts
Brookfield Renewable Partners stock is down about 28% from its peak in 2022. The decline is a great opportunity to buy the wonderful business for long-term investment. The stock correction is predominantly attributable to higher interest rates that have increased the cost of capital, making investment projects less attractive.
Additionally, higher interest rates have also made fixed-income investments better competitors for investors’ capital. In other words, some lower-risk investors have reduced capital in dividend stocks and put more in fixed-income investments like Guaranteed Investment Certificates. The economy goes through cycles of rising interest rates and declining interest rates. The next round of declining interest rates would trigger a stock market rally, but investors need to be patient.
By employing a value investing approach, disciplined capital allocation, and optimizing operations, Brookfield Renewable targets to deliver total returns of 12-15%. Investors could get higher returns over the next five years because the stock appears to be cheap.
Analysts believe the undervalued stock could appreciate about 36% over the next 12 months. However, investors would be better off focused on long-term investing of at least three to five years, because stocks can stay depressed for longer than you think. Thankfully, BEP.UN pays well to wait.
The business
Over the years, Brookfield Renewable has built a globally diversified clean energy entity that has leading positions across the major technologies of hydro (49% of its cash flow generation), wind (23%), and solar (16%) generation, as well as distributed generation, battery storage, and sustainable solutions. The portfolio has an operational capacity of about 32 gigawatts (GW), and it has a long growth runway with close to 132 GW in the pipeline.
Geographically, it generates about 58% of cash flow in North America, 20% in South America, and 20% in Europe. Its quality cash flows are approximately 90% contracted with a 14-year average power-purchase agreement term.
