A 3.7% yield might not sound huge on an absolute basis, but compared to the S&P 500 Index's scanty 1.3%, it's huge. Which is one of the reasons I think you'll find Brookfield Renewable Partners (BEP 1.20%) of interest. But there are many more reasons to like this growing player in renewable power. Here are five more reasons I like this name.
1. Pick the one that fits
I'm a sucker for a good dividend story, and there are a number of things to like about Brookfield Renewable Partners' distribution. A prominent one is that, in 2020, the limited partnership distributed shares of Brookfield Renewable Corporation (BEPC 1.16%) to unitholders. Partnerships come with tax complications, notably in this case the need to file a K-1 Form come tax day. This can turn some investors off. By creating a sister company that trades as a regular corporation, investors can avoid the headache.
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On the one hand, manager Brookfield Asset Management (BN 0.75%) opened up another way to fund Brookfield Renewable Partners, notably making it easier for institutional investors with restrictions against LP units to invest. However, it also gave smaller investors a choice in how they want to own it. That's a win/win and shows that Brookfield Renewable Partners actually thinks carefully about how best to serve those who own it. Both shares tend to trade with similar yields, noting that Brookfield Renewable Corporation's dividend yield is around 3.7% today, too.
2. A sound core
One of the most important things to understand about Brookfield Renewable, which we'll use from here on out to discuss both the LP and corporate version of the entity, is that roughly half of its renewable energy revenue is tied to hydroelectric plants.
Investors get very excited about solar and wind power, but hydroelectric is one of the oldest and most reliable power sources. It is a constant source of power, making it a great clean-energy baseload option that is a strong compliment to intermittent solar and wind power. It can also be ramped up and down more easily than steam generators. This is a wonderful foundation on which to build out newer technologies since there is little fear of change and it's hard to build new hydro options because all of the best locations are already taken.
3. The up-and-comers
So Brookfield Renewable's core is hydro, but its growth is coming from solar and wind power. These two intermittent power options make up 16% and 22% of revenue, respectively.
The rest of revenue comes from "energy transition," which is a bit of a catchall, including things like storage and distributed generation. At this point, solar is the big push, with Brookfield Renewable ending 2021 with 17.3 gigawatts of solar power under development. Following that up is wind, with 8.6 gigawatts of development. To round things out, energy transition has 2.9 gigawatts, with hydro pulling up the rear at 2.6 gigawatts.
That said, in January, Brookfield Renewable announced the acquisition of Urban Grid, adding another 20 gigawatts of development: 13 gigawatts of solar and 7 gigawatts of storage. In other words, the partnership has a massive backlog of work to build out, and it offers a well-laid-out and predictable path for growth in the key technologies driving the renewable power industry today.
4. Show me the money
That strong core and expanding opportunity for growth are the backbone that supports Brookfield Renewable's dividend/distribution promise. The current yield was noted above, but the real story is the 5% to 9% annual dividend/distribution growth target. The disbursement has been increased every year since 2010, adjusted for the Brookfield Renewable Corporation spin-off, with a compound annual rate of 6%.
That's a healthy number and proves management's commitment to rewarding investors. If the company can keep that up, which it looks likely to do given the backlog of work it has lined up, Brookfield Renewable looks like it offers a solid combination of income and growth.
5. A supportive parent
As noted above, Brookfield Renewable is externally managed by Brookfield Asset Management. Normally I don't like external-management setups because there are conflict-of-interest issues that often arise. However, Brookfield Asset Management owns a large amount of Brookfield Renewable and has a long history of running controlled entities successfully.
It also ends up co-investing with Brookfield Renewable and providing services that are, effectively, shared across multiple companies, reducing overall costs. Knowing that there's a backstop here, in the form of Brookfield Asset Management, is actually a net plus.
The all-in-one
There are other factors that could have come into play here, including a globally diversified portfolio. But the big story is that Brookfield Renewable really has a little something for everyone. The yield is generous, with a strong history of growth, and it is backed by a solid core hydro portfolio, has expansion opportunities in the hot categories of solar, wind, and storage spaces, and is supported by one of North America's largest asset managers.
Oh, yeah, and you can own it via an LP or a regular corporate structure, whichever makes the most sense for your needs. There are likely to be renewable power companies with better growth prospects, but if you are looking for a simple way to add renewable power to your portfolio, it is hard to beat Brookfield Renewable Power.
