Wall Street usually pushes things to extremes, which is something that investors need to understand when they look at the 50% plunge in Brookfield Renewable's (BEPC +0.00%) stock price since early 2021. To be fair, there was likely excess on the way up and on the way down, but what high-yield investors have now is an opportunity. Here's what you need to know.
Brookfield Renewable is tied at the hip with Brookfield Asset Management
If you want to understand Brookfield Renewable, you need to start by understanding Brookfield Asset Management (BAM +0.00%). Brookfield Asset Management is a large Canadian asset manager with an over 100-year history of investing in infrastructure on a global scale.
It created Brookfield Renewable Partners (BEP 1.36%) as a permanent funding vehicle and a way to broaden its reach among smaller investors. It then spun off a separate corporate share class, Brookfield Renewable, to further broaden the appeal of the funding vehicle, since some investors didn't want the headache of owning a partnership.
In essence, Brookfield Asset Management is giving investors a way to benefit from its investment approach in the clean energy space. This is important because Brookfield Renewable's approach to its business is very much an asset management-like approach.
It tries to buy assets when they appear attractively priced. It runs the assets it buys while, at the same time, trying to improve them to increase their value. And if management can get a good price for an asset, it will sell. The cash generated is used to buy new assets to start the cycle over again.
This is not a regulated utility, which has a government-granted monopoly in a given area. Brookfield Renewable is an active manager of renewable power assets. It is more like buying a mutual fund that owns a globally diverse portfolio of hydroelectric, wind, solar, battery storage, and other clean energy assets. For some investors, this won't make sense as an investment, but for others, it could be exactly what is desired.
There's a great deal to like Brookfield Renewable
Brookfield Renewable's big attraction after the huge stock price decline is its yield. The corporate share class, Brookfield Renewable, has a yield of 4.5%. For those willing to take on a little more complexity come tax time, the partnership version, Brookfield Renewable Partners, has a yield of 5.2%. Both are attractive figures when the yield for the Dow Jones Utilities Select Index has an aggregate yield of 3.33%.
NYSE: BEP
Key Data Points
Looking at the longer-lived version, Brookfield Renewable Partners, the distribution has been increased at a roughly 6% compound annual rate over the past two decades. That's right within management's target range for distribution growth of between 5% and 9% a year. Backing the dividend up is an investment-grade-rated balance sheet. On top of that, 90% of revenues are fixed contract rates, and the average remaining contract length is 13 years.
NYSE: BEPC
Key Data Points
Given the strong financial position of Brookfield Renewable and its long history of rewarding investors well on the dividend front, the steep stock decline looks like an opportunity for long-term dividend investors. At the peak, the price was probably too high, but it looks like the negative mood around this reliable dividend payer may be a bit too negative today.
A contrarian clean energy play
Over short periods of time, Wall Street tends to push things to the extremes. It's just how emotional human beings work. If you can step back from that and see the company behind the ticker, Brookfield Renewable and Brookfield Renewable Partners both appear to be very attractive income options today -- perhaps even the kind that you buy and hold forever, knowing that the asset management approach taken here will allow the company to adjust with the world around it over time.
