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 (NYSE:BEP) (NYSE:BEPC).
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.