Is Brookfield Renewable Partners a Buy for its 5.6% Yield?

Brookfield Renewable Partners stock is a reasonable buy for income today as it trades at a discount and offers an attractive yield of 5.6%.

Kay Ng

Author Bio Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt. Education Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting Areas of Expertise Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies. Social Media Profiles LinkedIn Favorite Investment Quotes “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published November 20, 2024 3:45 pm EST

Brookfield Renewable Partners (TSX: BEP.UN) offers investors a solid 5.6% yield, which is compelling for those seeking income today. With the best one-year Guaranteed Investment Certificate (GIC) rate sitting around 4%, BEP.UN’s yield provides a higher income potential. However, it’s important to understand the risks and rewards associated with this stock before deciding whether it’s a good fit for your portfolio.

Canadian dollars in a magnifying glass — Source: Getty Images

A higher yield with greater risk

Unlike traditional GICs, which offer guaranteed returns and the safety of your principal, investing in Brookfield Renewable Partners comes with a greater degree of risk. The company’s stock price can fluctuate based on market conditions, which means there’s no guarantee that your initial investment will remain intact. However, this risk is offset by the potential for both a growing income stream and upside capital appreciation.

For comparison, the Canadian stock market currently yields around 2.8%, and the Canadian utility exchange-traded fund (ETF), iShares S&P/TSX Capped Utilities Index ETF, yields about 3.4%. Brookfield Renewable’s yield stands out as significantly higher, making it an attractive choice for income-focused investors. However, what makes this company especially appealing is its long-standing track record of increasing cash distributions.

A track record of steady income growth

Brookfield Renewable Partners has increased its cash distribution for 14 consecutive years, which makes it a Canadian Dividend Aristocrat. This commitment to growing distributions makes it particularly attractive for long-term investors who prioritize steady, rising income.

Over the past three, five, and 10 years, BEP.UN has delivered cash distribution growth rates of 5.3%, 5.2%, and 5.7%, respectively. Management has set a target to increase the cash distribution by 5-9% annually, providing investors with a reliable, growing income stream. For example, if you were to invest $10,000 in your Tax-Free Savings Account (TFSA) today with no hindrance of taxes and the cash distribution grows by 5% annually, you could expect to recover your initial investment in fewer than 14 years.

This growth could be even faster if you reinvest the distributions, potentially reinvesting them in other assets, which could compound your returns more quickly. The company’s diversified renewable energy portfolio also supports this steady income growth, making Brookfield Renewable Partners a good consideration for those looking for long-term income generation.

Diversified portfolio and growth strategy

Brookfield Renewable Partners operates one of the largest and most diverse renewable power portfolios in the world, with around 34,000 megawatts (MW) of generating capacity spread across over 7,000 power-generating facilities. The company leverages hydro, wind, solar, and distributed energy solutions backed by long-term contracts to support its cash distribution. This diversified approach is crucial for ensuring stable cash flow even in periods of market volatility.

The company also takes a disciplined approach to growth, acquiring high-quality renewable assets at attractive prices and optimizing them to maximize returns. It has a track record of achieving long-term returns of 12-15% annually on its investments. With over US$100 billion of assets under management, Brookfield Renewable Partners is well-positioned to continue generating reliable cash flow and income growth that could lead to long-term capital appreciation for its investors.

Strong credit rating and investment potential

Brookfield Renewable Partners enjoys an investment-grade credit rating of BBB+ from S&P, which provides confidence in its ability to meet financial obligations and continue growing its portfolio. In the last decade, the stock delivered total returns at a compound annual growth rate of about 10%, which, while not extraordinary, is respectable for a reliable business in the utility sector.

At $35.37 per unit at writing, analysts believe the stock is trading at a discount of approximately 18%. This discount, combined with the company’s attractive yield and potential for growth, makes Brookfield Renewable Partners a logical consideration for income-seeking investors looking for both steady returns and long-term capital gains.