The Bank of Canada cutting the policy interest could potentially be a trigger that helped push Enbridge (TSX:ENB) stock to its 52-week high. Although it still offers a rich dividend yield of close to 7% at $52.61 per share at writing, it now trades very close to its intrinsic value. So, the stock has little margin of safety.
That said, a combination of Enbridge stock’s dividend and its modest growth could still result in long-term returns of more or less 10% per year over the next few years. So, the blue chip stock could still be good for holding, particularly for income-focused investors.
Here’s a dividend giant I’d buy over Enbridge stock right now.
ENB and BEPC data by YCharts
An undervalued renewable energy operator
Unlike Enbridge stock that’s up north of 9%, Brookfield Renewable Corporation (TSX:BEPC) has only climbed 2% over the last 12 months. Renewable assets only make up a small percentage of Enbridge. As renewables have multi-decades of growth globally, Brookfield Renewable, with its international platform for renewable power and decarbonization solutions, is likely a better investment for the future.
The renewable giant just reported solid second-quarter results. Funds from operations (FFO) climbed 9% to US$339 million, while the FFO per unit rose 6% to US$0.51.
Year to date, FFO was US$635 million, up 8% year over year, while FFO per unit was US$0.96, up 5%. Interestingly, Connor Teskey, CEO of Brookfield Renewable, noted in the press release that BEP was positioned “to deliver our target 10%+ FFO per unit growth target for 2024.” This suggests that Teskey anticipates BEP’s results in the second half of the year would be better than the first half.
Green capital investments
BEP also successfully deployed “significant capital into opportunities that further enhance the market-leading reach and scale of our business. Our investments focused on adding leading platforms in attractive markets with scale operating businesses and development pipelines that complement our current operations and further diversify our cash flows.”
Furthermore, Teskey noted the benefit of renewables on top of decarbonization: “Renewables are not simply a decarbonization solution, they are a growth enabler. They are the lowest cost source of bulk power, and as more renewables come online, it makes more low-cost electricity available to businesses, which facilitates even greater demand – all while decarbonizing global electricity grids.”
Key highlights for the quarter include having deployed or committed to deploy US$8.6 billion of capital (US$970 million net to BEP) across multiple investments globally. It also secured contracts to deliver an incremental 2,700-gigawatt hours per year of generation, of which about 90% of development was contracted with corporate customers. One of its recent proud partnerships was with Microsoft (NASDAQ:MSFT) to deliver over 10,500 megawatts of renewable capacity between 2026 and 2030.
A decent dividend
The contracted cash flows align with portfolio cash flows that are about 90% contracted for an average of 13 years.
Brookfield Renewable Corporation offers a decent dividend yield of 5.1% that’s competitive against income provided by traditional guaranteed investment certificates. Actually, the corporation was spun off from Brookfield Renewable Partners L.P. (TSX:BEP.UN), which offers a higher cash distribution yield of 5.9%. The two are economically equivalent. So, investors could choose to invest in the latter if they don’t mind receiving cash distributions, which could be taxed differently depending on the sources of the distribution.
Brookfield Renewable Partners has increased its cash distribution for about 14 consecutive years with a 10-year cash distribution growth rate of 5.7%.
Given Brookfield Renewable’s higher growth rate, it has the potential to deliver more annual income to investors down the road. Additionally, analysts’ consensus view is that the stock offers a bigger margin of safety with a discount of about 18 to 20% from its intrinsic value.
