Please ensure Javascript is enabled for purposes of website accessibility

My Best Dividend Stock for 2021

By Keith Speights - Jan 17, 2021 at 6:08AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There's a lot to like with this high-flying dividend stock.

Picking the best in any category requires some work. You have to look at all the viable candidates. Then you whittle down the list to a handful of the top alternatives. You compare, contrast, and consider all of their pros and cons to settle on one winner. 

This process applies to finding the best of pretty much anything. It's what I did to determine my choice as the best dividend stock for 2021. When all of the analysis was said and done, though, one stock stood out: Brookfield Renewable (BEP -0.43%) (BEPC -0.21%).

Solar panels and wind turbines

Image source: Getty Images.

Business is booming

What was the most important factor in my decision to pick Brookfield Renewable? It actually wasn't the company's dividend. What really set Brookfield Renewable apart from the others was the strength of its underlying business.

Brookfield Renewable ranks as one of the leaders in renewable energy. The company operates more than 5,300 power generation facilities in North America, South America, Europe, and Asia. Combined, these facilities have a capacity totaling 19,400 megawatts. 

It's not surprising that renewable energy stocks have performed very well in recent years. Demand for renewable power continues to grow. During last year's recession, U.S. electricity generation fell 5%, while fossil fuel generation sank 10%. Meanwhile, renewable power generation increased by 14%. 

One factor working to Brookfield Renewable's advantage is that countries around the world have established goals to drastically cut carbon emissions. This makes switching to renewable energy sources a no-brainer. In the U.S., big states such as California and New York have set carbon reduction targets, but nothing has been put into place at the federal level. That could change with the incoming Biden administration.

Another big reason behind the surge in demand for renewable energy is cost. Wind and solar are now the cheapest sources of large-scale energy generation. Their cost advantage is likely to grow over the next few years. 

Roughly 64% of Brookfield Renewable's portfolio consists of hydroelectric power facilities. However, the company's wind and solar capacity is rising steadily. Brookfield Renewable has an 18,000-megawatt development pipeline -- nearly double its current capacity. Solar accounts for 10,000 megawatts of that pipeline.   

A strong, growing dividend

Of course, I couldn't select Brookfield Renewable as my best dividend stock for this year without discussing its dividend, which the company refers to as a distribution. The company offers an attractive yield, but it requires a little explanation.

Brookfield Renewable has operated as a limited partnership (LP) since its formation. In 2020, though, the company created Brookfield Renewable Corporation as an alternative way to invest in the company without having to deal with some of the tax issues associated with LPs. 

Both Brookfield Renewable Partners and Brookfield Renewable Corporation share the same underlying business. They both pay the same distribution. However, because of the differences in their stock prices, the LP's dividend yield is currently around 2.4%, while the corporation's yield stands at a little under 2%. 

The most important thing to know about Brookfield Renewable's distribution is that it's strong and growing. Over the last two decades, the company has increased its distribution by a compound annual growth rate of 6%. At that rate, its distribution doubles roughly every 12 years.

Right place, right time, right stock

Brookfield Renewable's shares soared 74% in 2020. That was certainly a banner year, but the stock has consistently been a big winner. Over the last 20 years, Brookfield Renewable has delivered an annualized total return of 18% -- three times greater than the S&P 500 index's performance during that period. 

The global commitment to renewable energy is greater now than it's been in the past. Brookfield Renewable's development pipeline is bigger now than it's been in the past. I think that Brookfield Renewable is the right dividend stock at the right place and the right time in 2021.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
BEP
$34.51 (-0.43%) $0.15
Brookfield Renewable Corporation Inc. Stock Quote
Brookfield Renewable Corporation Inc.
BEPC
$35.38 (-0.21%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.