Let’s get the bad news out of the way first. If you had invested $5,000 in Brookfield Renewable Partners L.P. (TSX:BEP.UN) a year ago, according to the data from YCharts, your position is actually down to about $4,604 for a negative return of 7.9%. This already includes the cash distributions paid out.
It’s important to emphasize that investing is a long-term game of building wealth. Besides, that was but a specific point in time. For example, if you bought the stock during the recent dip, the stock appreciated about 20% from the bottom in October!
Although it feels good to see stocks you own move higher over the short term, it is what you make in the long run that matters. For example, if you had invested $5,000 in the stock a decade ago instead, you would be sitting on approximately $20,660 or four times your money for total returns of 15.2% per year. So, the stock being down over the last year could be a good buying opportunity.
Mind you, most investors don’t invest in a lump sum anyway, unless maybe when they get a windfall. Most investors set aside monthly or yearly savings to invest over time for the long term.
Other than price appreciation, another core source of return is dividends or cash distributions. Research shows that at least a third of long-term returns come from dividends. Arguably, dividends can be a more reliable way of making money because stock prices go up and down, sometimes impacted by changes in macro conditions such as interest rates.
If you select stocks that pay out safe (and ideally growing) dividends or cash distributions, you can technically make 100% safe and growing passive income.
By holding shares of Brookfield Renewable Partners, investors expect to earn passive income they can sleep peacefully on. The dividend stock is impeccable in this matter. The global platform for renewable power and decarbonization solutions has been hiking its cash distribution for about 14 consecutive years with a 10-year cash-distribution growth rate of 5.7%.
Its cash-distribution growth rates in the last one, three, and five years were all north of 5%. Going forward, management continues to commit to increasing the cash distribution by 5-9% per year. So, investors can anticipate cash-distribution growth of at least 5% a year.
When combined with its cash distribution yield of 5.2%, investors can approximate long-term returns of about 10% without any valuation expansion. How is Brookfield Renewable Partners paying higher cash distributions year after year?
In the past decade, Brookfield Renewable increased its funds from operations (FFO) per unit by over 10% per year. This approximates a rate of return of about 15% when combined with its 5% dividend, assuming no valuation expansion. This aligns with its total return of 15.2% per year over the last decade.
The company has the development capabilities in all the key technologies (solar utility, wind, hydro, and distributed generation and storage). It has been scaling up these capabilities and has put into service about 3,400 megawatts of projects over the past year. These projects will produce an additional US$50 million of FFO per year. And it always targets a rate of return of 12-15% on its projects.
Currently, it has an operational capacity of about 32 gigawatts (GW), while its pipeline is humongous at about 132 GW. Therefore, it has decades of growth ahead of it. As a part of their diversified portfolios, investors can buy the shares over time (especially on dips) and watch their passive income grow.
