2018 was the best of times and then the worst of times for investors as the stock market surged and then crashed. That late swoon took nearly every stock with it. However, as with most challenges, they also bring opportunities. In this case, one of the side effects of lower stock prices is that dividend yields rose. Consequently, income-focused investors can lock in some attractive income streams these days.
One such opportunity is hydropower generating giant Brookfield Renewable Partners (BEP 0.28%), which lost roughly 30% of its value during 2018. That's an aberration for a company that has delivered an average annual total return of 15% throughout its history. Because of that, and a 5% distribution increase in February, its yield has risen from around 5% to about 8%. Given its top-notch financial profile and visible growth prospects, it's an excellent company for yield-seeking investors to buy this month.
Strength amid the stormy stock market
There's no logical reason for Brookfield Renewable Partners' sell-off in 2018. For starters, the company's operations have minimal exposure to market volatility. That's because long-term contracts back more than 90% of its cash flow, which mitigates the impact that changes in power prices might have on its finances.
Meanwhile, Brookfield targets to pay out about 70% of its cash flow to investors each year, giving it a wide margin of safety. Adding to the company's financial security is its strong balance sheet, which features the highest credit rating in the sector, backed by conservative credit metrics and minimal debt coming due in the next five years. The company took steps to enhance its financial profile during 2018 by raising more than $850 million in capital through select asset sales and other fundraising activities. As a result, it had more than $2.3 billion in cash and available credit to capture opportunities that might arise, which is growing increasingly likely amid the recent market turmoil.
Well positioned for what's ahead
While Brookfield has ample capital to make more deals, it doesn't need acquisitions to drive growth. That's because Brookfield Renewable Partners' existing portfolio of renewable assets can generate 6% to 11% annual cash flow growth over the next five years.
Several factors drive that view. First, Brookfield Renewable's contracts contain inflation escalators that should expand cash flow by about 1% to 2% per year. It also has several initiatives underway to boost the profitability of its legacy assets, including signing new long-term contracts at higher current power prices as well as reducing costs, which should expand earnings another 2% to 4% annually. Finally, the company has several renewable energy projects in development, including hydropower facilities in Brazil and an energy storage expansion in the U.S. that should grow earnings at a 3% to 5% yearly pace. That visible earnings growth should enable Brookfield Renewable to increase its high-yielding distribution to investors at a 5% to 9% annual pace.
Brookfield's sound financial profile gives it the funds to make additional investments to create value for investors. The company aims to invest about $700 million per year in expanding its portfolio, which not only includes development projects but additional acquisitions as well. Its global focus and operational expertise give it a leg up on the competition on making deals.
Finally, the slide in the company's unit price over the past year led it to authorize a repurchase program in late December. Brookfield could retire as much as 5% of its outstanding units, which could help boost its value in 2019.
A top high-yield stock for 2019 and beyond
Brookfield Renewable Partners' sell-off in 2018 looks like a great buying opportunity for long-term investors this January. That's because the company's financials improved while its stock price plunged, giving investors the chance to buy a great company at an even better value. That sets them up to collect a generous, steadily increasing income stream in 2019 and beyond. This income with upside could enrich investors over the long term.