Brookfield Renewable Partners L.P. (TSX:BEP.UN) stock has recovered more than 23% from its lows in late 2023. Is it too late to buy the stock to get renewable energy powered utility exposure for your diversified portfolio? Let’s take a closer look.
Source: Getty Images
Brookfield Renewable Partners returned more than 2x the market over the last 10 years
First, it’s important to point out that Brookfield Renewable has a strong history of execution, growing into a global clean energy company with operating, development, and power marketing expertise on four continents. It is a leader in all major renewable technologies (hydro (26% of its portfolio), wind (32%), utility-scale solar (22%), and distributed generation, storage, and sustainable solutions(19%)).
This has driven the dividend stock to deliver sector- and market-beating total returns of approximately 15% per year over the last decade, as shown in the graph below. BEP.UN has essentially quadrupled investors’ money in the period, benefiting long-term buy-and-hold investors. This performance was better than an investment in the Canadian stock market, using iShares S&P/TSX 60 Index ETF (TSX:XIU) as a proxy, that doubled investors’ money in the period.
BEP.UN, XUT, and XIU from an initial investment of $10,000; Total Return Level data by YCharts
Notably, Brookfield Renewable Partners stock looked like it was in a green energy bubble (potentially supported by low interest rates) and peaked in 2021 when investors flocked into the space. And the stock has been in a downward trend since. Since 2022, it has also been pressured by higher interest rates, although the company is well capitalized and maintains an investment-grade balance sheet. Today, the stock seems to be fairly priced.
Investors can hold shares for growing income
Since the bulk of its total returns comes from its growing cash distribution, it makes good sense to hold the stock for income. At $34.50 per unit at writing, Brookfield Renewable Partners stock offers a nice cash distribution yield of approximately 5.2%. The stock has increased its cash distribution for about 14 consecutive years with a 10-year growth rate of 5.7%.
Going forward, management has provided guidance to increase the cash distribution by 5-9% per year. But based on its history, let’s assume it increases the cash distribution at the low end of the estimation – by 5% per year. Assuming no valuation expansion, we can approximate long-term total returns of roughly 10–11% per year. This would be a decent return for a high yield stock that pays out safe income.
Actually, management projects a funds from operations (FFO) per unit growth rate of north of 10% through 2027 from a combination of inflation escalation, margin enhancement, development pipeline, and merger and acquisition (M&A) activities. That could result in total returns of about 15% per year! Even without any M&A activities, the baseline case still calls for 7% FFO per unit growth, which equates to an approximate rate of return of 12%.
Growth
Brookfield Renewable Partners currently has about 32 GW of operational capacity, and it has the best-in-class growth capabilities. The clean energy producer has roughly 132 GW in its pipeline to substantially grow its portfolio. Its development pipeline is diversified across technologies as follows: (hydro (2%), wind (20%), utility-scale solar (54%), and distributed generation, storage, and sustainable solutions(24%)).
Brookfield Renewables Partners has decades of growth ahead of it as global decarbonization continues. So, it’s not too late to buy the stock. Today, it is reasonably priced for a cash distribution yield of 5.2% and estimated long-term total returns of at least 10% per year. So, interested investors can start buying here or load up on dip opportunities that could be made available by market volatility.
