It can be really difficult to think about the future right now. We’re all well aware that there is a growth opportunity to be had with renewable energy stocks. However, when will that actually be? After all, stocks in this sector have fallen further and further. And with the economy and stock market the way it is at the moment, it doesn’t seem like there could be a growth opportunity here for quite some time.
That’s why today, we’re going to take a look into Brookfield Renewable Partners (TSX: BEP.UN). Of the renewable energy stocks, it provides perhaps the most diversification and exposure into the industry. Let’s take a look at the three things every smart investor should know about BEP stock before you dive in or turn away from it.
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Growth potential
First off, let’s talk about that growth potential. The global demand for clean energy is expected to keep growing significantly in the coming years. Here, BEP stock should certainly be a major benefit, benefitting from this growth in the renewable energy space. There continues to be rising consumption, with the International Energy Agency (IEA) forecasting global energy demand to increase by 1.3% annually until 2050!
Meanwhile, the entire market looks as though it will grow by a compound annual growth rate (CAGR) of 17.2% between 2024 and 2030. That would allow the industry to reach a market size of US$3.6 trillion, according to Grand View Research.
As for BEP stock, the company is aiming for funds from operations (FFO) to grow by 10% each year through 2028. In that time, this would support a dividend hike of between 5% and 9% during that period. Furthermore, analysts see the share rising all the way up to even $44, a potential 40% increase in the next year!
A dividend provider
Let’s talk about that dividend. BEP stock currently offers a dividend yield of 6.23% as of writing. Therefore, it’s no wonder that investors might be attracted to it for even just the dividend alone. I know I was!
The issue right now is that the dividend isn’t exactly well covered by earnings or cash flow at this point. This could raise concerns about sustainability in the near term. The company may need to cut or even suspend it in the future if earnings don’t pick up in the way that the company hoped for.
Right now, the payout ratio for the dividend is at a whopping 649%! Just to provide you with some information, it’s ideal for a dividend stock to have a payout ratio between 50-80%. So, that is way higher than what investors will hope for.
Share dilution
This leads into my final point for investors considering BEP stock, and that’s share dilution. This is when a company issues new shares, increasing the total number of outstanding shares in the process. This can decrease the ownership stake and even future earnings per share for existing shareholders.
BEP stock has used this strategy to raise capital for growth and acquisitions, of which there are many. And while this can be great for expansion, investors are still waiting to see proof the strategy is working.
Analysts believe the potential is there, of course, especially with all the growth expected in the future. Some even believe the stock to be undervalued! But overall, investors will want to continue watching earnings reports to see positive momentum. Then, and perhaps only then, would I consider buying once again.
