Benjamin Graham, the famous investor who helped train Warren Buffett, used to talk about Mr. Market, a mercurial fellow who would swing between states of enthusiasm and despair. It's an apt description of the stock market that is important to remember when assessing Brookfield Renewable Corporation (BEPC 0.09%) and its sister share class Brookfield Renewable Partners (BEP 0.19%). Here's a quick look at Brookfield Renewable and whether it is worth buying today.
What does Brookfield Renewable do?
To simplify things, we'll use Brookfield Renewable to discuss both share classes of the company. Effectively, they represent the same entity anyway.
Image source: Getty Images.
Brookfield Renewable owns and operates a globally diversified portfolio of roughly 30 gigawatts of operating capacity spread across hydroelectric power, solar, wind, storage, and other clean energy sources. Hydro is a heavy hitter in the portfolio because it is an old and proven technology that can provide base-load power. It is the foundation on which the company is building out its positions in solar, wind, storage, and other areas. The big story for Brookfield Renewable, however, is the backlog, which sits at around 134 gigawatts. The annual run rate of new projects is expected to be around 7 gigawatts a year, so the backlog represents decades' worth of capital investment opportunity. Even if all of the backlog doesn't get built, there's still a lot of growth ahead for Brookfield Renewable.
The assets the company owns are generally backed by long-term contracts that provide it with stable cash flows. As new assets are brought on, Brookfield Renewable's dividend-paying ability grows. Between 2012 and 2023, its payout increased at an annual rate of around 6%, which is in line with the company's stated dividend growth goal of between 5% and 9%. Given the massive backlog, there's no reason to think that this renewable power specialist won't be able to continue rewarding investors well in the future.
Backing that statement up is an investment-grade balance sheet, and -- perhaps more important -- the support of investing powerhouse Brookfield Asset Management (BAM 1.87%), which handles the day-to-day operation of Brookfield Renewable. Brookfield Asset Management also invests alongside Brookfield Renewable. So there's a strong financial foundation here and a further backstop behind that. Brookfield Renewable appears well positioned to take advantage of the world's ongoing transition toward clean energy.
Buy Brookfield Renewable
So far there are some strong fundamental reasons to buy Brookfield Renewable. But the reason to consider doing it right now is that the stock has fallen dramatically from its 2021 highs. Both share classes have been cut in half.
Given the solid business here, the main reason for this is more likely investor sentiment than anything specific to Brookfield Renewable. Sure, higher interest rates will probably make life more difficult for the company, but that isn't likely to stop its long-term growth. So if you are interested in the business, the shares look a lot cheaper today than they did not too long ago.
But here's the really interesting thing: You can lock in a dividend yield of more than 5% if you buy now. And there's a high likelihood that the dividend will continue to increase in the future as new capital investments get completed and start producing cash flows. Slow and steady is likely to be the name of the game, but for investors taking a growth plus income approach, this company should be highly attractive. Even investors focused on maximizing current income will probably find that 5%-plus yield appealing.
Hold Brookfield Renewable
The reasons to hold this stock are basically the same as the reasons you might buy it. The business appears strong and there are likely years of growth ahead. If you bought when the price was higher, why lock in those losses if you're a fan of the company? Brookfield Renewable seems highly likely to keep rewarding you with dividend growth. And if that happens, the stock price is probably going to recover in time. While you wait, you get to collect a healthy income stream, which is hard to complain about.
After all, investor sentiment swings from positive to negative all the time in a seemingly never-ending cycle on Wall Street. Mr. Market is extremely mercurial. So there's no reason to believe that, given enough time, investors won't start to see the value Brookfield Renewable offers.
Sell Brookfield Renewable
That said, investors who bought in when sentiment was optimistic might be sitting on large capital losses. That's not likely to change quickly. And that opens up the potential for capturing those losses to offset gains elsewhere in your portfolio. After 30 days, you can buy Brookfield Renewable back without triggering red flags with the IRS that would nullify the losses for tax purposes. This tactic is only an option in taxable accounts, however.
The other reason you might sell Brookfield Renewable is if you happened to find an investment you liked better, but that's outside of this article's scope. As the company stands, it is well run and business growth ought to continue for years. It appears more likely that investors would want to add to their positions to average down their purchase price than sell just to get out from under an underperforming investment.
There's more good than bad at Brookfield Renewable
Nobody likes to see a stock they own fall 50%, but it happens. With Brookfield Renewable, the long-term story hasn't changed dramatically even though investor sentiment around clean energy stocks has clearly soured. That's an opportunity for investors to buy it for the first time and for current shareholders to add to their positions. There doesn't appear to be a strong argument for selling at this point (except for more strategic reasons, and at the portfolio level), even if you don't want to buy more.
