Dividend stocks can be a great way to supplement income while building long-term wealth. For Canadian investors seeking a combination of recurring cash distributions and growth potential, Brookfield Renewable Partners L.P. (TSX: BEP.UN) deserves a closer look. With a globally diversified roughly 50-GW portfolio of hydroelectric, wind, and solar assets, the partnership offers an excellent way to participate in the growing demand for clean electricity.
At $42.67 per unit at writing, Brookfield Renewable offers an annual distribution yield of about 5.2%. This means investors would need to purchase about 225 units, representing an investment of roughly $9,600, to generate approximately $500 in annual distributions. That’s equivalent to about $125 every quarter, providing a meaningful supplemental income stream.
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Strong distribution income with growth potential
What’s particularly appealing is that investors aren’t simply buying a high-yield investment. They’re also gaining exposure to a business with promising long-term growth prospects.
Over the last 12 months, Brookfield Renewable delivered 15% growth in funds from operations (FFO) to nearly US$1.5 billion, while FFO per unit increased almost 12% to US$2.18. These results demonstrate the partnership’s ability to grow its underlying cash-generating capacity.
Looking ahead, electricity demand is expected to increase as economies pursue reindustrialization, electrification, and digitalization. The expansion of data centres and artificial intelligence infrastructure could provide additional opportunities for renewable energy producers.
Brookfield Renewable targets long-term FFO-per-unit growth of over 10% and annual distribution growth of 5% to 9%. It has also increased its distribution for approximately 16 consecutive years, with a long-term growth rate exceeding 5%. If management achieves its targets, investors could enjoy rising income without having to purchase additional units.
Reliable cash flows support the payout
Of course, a high distribution yield is only attractive if the underlying business can sustain it. Fortunately, Brookfield Renewable has several characteristics that support cash flow visibility.
Approximately 90% of its cash flow is contracted for an average of around 12 years, while roughly 70% of revenue is linked to inflation. These mechanisms help provide predictable revenue and protect the business against rising costs.
Furthermore, more than 95% of its debt carries fixed interest rates, with an average maturity of roughly 14 years. This reduces exposure to near-term interest rate fluctuations and gives management greater visibility into future financing costs.
Is now a good time to invest?
At the recent quotation, Brookfield Renewable trades nearly 12% below the analyst consensus price target, suggesting potential upside of about 13%. While analyst targets aren’t guarantees, the valuation appears reasonable for investors seeking both income and long-term growth.
Investors could consider accumulating units gradually, particularly during broader market corrections, to potentially improve their margin of safety.
The bottom line
An investment of about $9,600 in Brookfield Renewable could generate $500 in annual distributions at a 5.2% yield. With a lengthy distribution-growth record, resilient contracted cash flows, and exposure to rising electricity demand, the partnership offers an appealing income-and-growth opportunity. Its anticipated merger with Brookfield Renewable Corporation in the fourth quarter could also change the form of future investor payouts, with eligible dividends expected afterward. The utility still has execution risks for its large 200GW-plus of development pipeline, though.
