Brookfield Renewable (BEPC 0.60%) (BEP -0.24%) has become a must-own stock for dividend investors. It has a top-notch financial profile and is one of the leaders in the global decarbonization trend. That should give it the power to continue growing its already attractive 4.3%-yielding dividend for years to come.
Here's why dividend investors shouldn't overthink things and consider adding this top-notch dividend stock to their portfolios.
Build on a highly sustainable foundation
Brookfield Renewable operates a globally diversified clean-energy infrastructure business. The company gets 52% of its cash flow from hydroelectric, 21% from wind energy, 15% from utility solar, and 12% from distributed energy (e.g., rooftop and community solar) and sustainable solutions. It also recently agreed to invest in the nuclear-energy sector.
The clean-energy infrastructure company's business activities generate stable cash flow, primarily backed by long-term power-purchase agreements that sell its electricity to utilities and large corporate buyers. Meanwhile, it targets to pay out 70% of its stable cash flow over the long term to investors via its dividend. (Its dividend-payout ratio was 76% during the first half of 2022.) That gives it a nice cushion while enabling it to retain cash flow to fund new investments.
Brookfield Renewable complements its conservative business model with a strong investment-grade balance sheet. It strives to maintain a solid financial position by routinely recycling capital, selling mature assets, and then using the proceeds to finance new, higher-returning investments. This approach further enhances the long-term sustainability of Brookfield's dividend.
A high yield now with more income in the future
Brookfield's current dividend is a big draw for yield-seeking investors since it's more than double the 1.8% dividend yield offered by an S&P 500 Index fund. However, what makes it a no-brainer investment is the likelihood that the dividend will continue growing in the future.
The renewable energy giant delivered its 11th straight year of growing its payout by at least 5% in 2022. Meanwhile, it has increased the dividend at a 6% compound annual rate since its inception in 1999. The company's long-term target is to increase the payout at a 5% to 9% yearly rate.
Brookfield should have plenty of power to continue growing its dividend. It has three organic growth drivers:
- Inflation escalation: The power rates on Brookfield's existing contracts rise with inflation. The company expects this capability will grow its cash flow per share at a 1% to 2% annual rate.
- Margin enhancement: Brookfield expects to lock in higher power rates as its existing contracts expire and roll over to market rates. It sees this catalyst adding another 2% to 4% to its bottom line each year.
- Development pipeline: Brookfield has more than 100 gigawatts of renewable energy projects in development, over four times its current operating portfolio. The company sees its development investments growing its cash flow per share by 3% to 5% per year.
That trio of organic-growth drivers should power 6% to 11% annual growth in Brookfield's cash flow per share. However, the company has already secured the projects and funding needed to support at least 8% yearly growth through 2027.
In addition to organic growth, Brookfield believes merger and acquisition activities could add up to another 9% to its bottom line each year. That's up to 20% annual growth over the next five years.
As mentioned, the company has a conservative financial profile and an active capital-recycling strategy, giving it lots of flexibility to pursue new investments. That should give it plenty of power to continue growing its dividend by at least 5% per year.
A foundational income stock
Brookfield Renewable has become a no-brainer investment for dividend seekers. It pays a rock-solid high-yielding dividend that it should have the power to continue growing in the future, given its exposure to the global decarbonization megatrend. Because of that, it deserves a place in any income-focused investor's portfolio.