Investing in dividend-paying, recession-resistant stocks is a good strategy to beat broader market returns over time. You identify a portfolio of quality companies that generate cash flows across market cycles while paying shareholders an attractive dividend. Moreover, these companies should increase these payments each year, enhancing the effective yield in the process.
Here is one recession-resistant dividend stock in Brookfield Renewable Partners (TSX: BEP.UN) that you can buy and hold forever.
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An overview of Brookfield Renewable Partners stock
One of the largest clean energy companies in the world, Brookfield Renewable Partners, has already created significant wealth for long-term shareholders. For instance, in the last 20 years, the stock has returned over 1,100% to shareholders after adjusting for dividends.
Brookfield Renewable Partners owns a portfolio of power-generating facilities in the Americas, Europe, and Asia. It generates electricity through hydro, wind, solar, pumped storage, distributed generation, and biomass sources.
Currently, BEP pays shareholders an annual dividend of US$1.42 per share, translating to a forward yield of 6.2%. In the last decade, these payouts have risen by 9.8% annually, which is exceptional for a utility stock.
In 2023, Brookfield Renewable reported FFO (funds from operation) of US$1.1 billion, or US$1.67 per share. Comparatively, in the last four quarters, it paid dividends of US$1.352 per share, indicating a payout ratio of 80%, which is not very high for a capital-intensive company.
Brookfield Renewable continues to grow
In the last year, Brookfield Renewable advanced commercial priorities, which include securing contracts for new developments totalling 50-terawatt hours of generation. It accelerated multiple development activities and commissioned 5,000 megawatts of clean energy capacity across wind, solar, and battery storage, further diversifying its cash flows. This commissioned capacity should contribute US$60 million of incremental FFO each year on a run-rate basis.
Brookfield emphasized its advanced-stage development pipeline has expanded to 24,000 megawatts, which will contribute US$300 million of FFO annually once commissioned. It also deployed or agreed to deploy US$2 billion of capital towards acquisitions in key markets, which should be accretive to cash flows.
Further, Brookfield Renewable continues to execute capital-recycling initiatives, generating US$500 million of proceeds, representing three times its invested capital and providing liquidity for growth.
A strong balance sheet
Despite rising interest rates, Brookfield Renewable could grow its FFO per share by 9% year over year in 2023, which can be used to lower balance sheet debt or target acquisitions. In recent quarters, it has strengthened the balance sheet and executed US$15 billion of financings, ending the year with US$4 billion in total liquidity.
In the company’s fourth-quarter press release, BEP explained, “Our prudent approach to financing our business, combined with the strength of our balance sheet, durability of our cash flows, and diverse sources of scale capital, ensured that we were able to continue to pursue growth at a time when some could not, and there was less competition.”
What is the target price for BEP stock?
BEP trades at 14 times trailing cash flows, which is very cheap given its steady growth rates and high dividend yield. Analysts tracking the clean energy heavyweight remain bullish and expect BEP stock to gain 25% in the next 12 months. After adjusting for dividends, total returns may be closer to 32%.
