Investing in beaten-down blue-chip stocks can help you benefit from an elevated dividend yield and capital gains. In the last two years, companies with debt-heavy balance sheets have trailed the broader markets due to rising interest rates and a challenging macro environment. However, the pullback allows you to buy quality companies trading at a steep discount to their historical valuations.
One such TSX dividend stock is Brookfield Renewable Partners (TSX:BEP.UN), which is down 48% from all-time highs. Let’s see why this clean energy stock is a screaming buy right now.
Why should you invest in Brookfield Renewable Partners?
Valued at $21.5 billion by market cap, Brookfield Renewable Partners offers shareholders a tasty dividend yield of 6%. With a presence in 20 countries, Brookfield operates on a global scale and has extensive experience across key renewable power technologies. Growing electricity demand and the worldwide shift towards clean energy solutions provide Brookfield with enough room to grow its earnings and dividends over time.
Armed with an investment-grade balance sheet, Brookfield Renewable Partners has access to diverse capital sources and a visible path to grow its distributions between 5% and 9% annually in the future.
Brookfield Renewable owns and operates a diverse portfolio of renewable power assets, including solar, wind, hydro, and distributed energy and storage. The company aims to generate strong risk-adjusted returns, with a target internal rate of return between 12% and 15%.
It also expects to grow its funds from operations (FFO) by 10%, which should support consistent dividend hikes and significantly enhance the yield at cost. Brookfield aims to deploy between US$7 and US$8 billion towards growth opportunities, making it an enticing investment option in 2024.
Between 2016 and 2023, Brookfield Renewable has raised its FFO per unit by 12% annually, while its dividend distributions have grown at an average of 6% each year since 2004. The key reason for Brookfield’s steady cash flow growth is that 70% of its revenue is indexed to inflation. Additionally, 95% of its debt is fixed-rate with an average maturity of 12 years.
A strong performance in Q1 of 2024
Brookfield Renewable generated FFO of US$339 million or $0.51 per share, up 9% year over year. The company has deployed or committed to deploy close to US$1 billion across multiple investments, which should further diversify cash flows.
It advanced commercial priorities and secured contracts to deliver an incremental 2,700 gigawatt hours per year of generation, of which 90% of the development was contracted with corporate customers. Earlier this year, Brookfield Renewable partnered with Microsoft to supply the tech giant with 10,500 megawatts of renewable capacity between 2026 and 2030. Moreover, it commissioned around 1,400 megawatts of new clean energy capacity in the second quarter and aims to end the year with 7,000 megawatts of new capacity.
With US$4.4 billion of available liquidity, Brookfield Renewable has focused on asset-recycling initiatives, the proceeds of which would be deployed towards its pipeline of growth opportunities.
Despite the ongoing pullback, Brookfield Renewable has returned close to 1,400% to shareholders after adjusting for dividend reinvestments. Analysts remain bullish and expect the stock to surge around 30% in the next 12 months.
