I love to collect dividend income. That's why I own many dividend stocks, most of which have higher-yielding payouts. I typically buy more shares of my favorite dividend stocks each month.
However, if I could buy only one dividend stock this June, it would be Brookfield Renewable (BEPC -1.43%) (BEP -0.50%). Here's why it stands out as my top buy for dividend income this month.
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A high-quality, high-yielding dividend stock
Shares of Brookfield Renewable have been drifting lower and currently sit more than 15% below their 52-week high. That slump has driven up the renewable energy company's dividend yield to more than 5%. That's several times higher than the S&P 500's dividend yield (which is less than 1.5%).
The company supports its high-yielding payout with very durable cash flows. Brookfield sells about 90% of the power it produces under long-term, fixed-rate power purchase agreements (PPAs) with an average remaining term of 14 years. Most of those PPAs index power rates to inflation (70% of Brookfield's revenue). The power producer also has a strong investment-grade balance sheet, which provides further support for its high-yielding payout.
Brookfield Renewable has a terrific record of paying dividends. The company has grown its payout at a 6% compound annual rate since 2001 and has raised its dividend by at least 5% in each of the last 14 years.
Powerful growth for the next decade
Brookfield aims to grow its high-yielding dividend at a 5% to 9% annual rate. That shouldn't be a problem, given the powerful growth it sees ahead.
The company estimates that its inflation-linked PPAs should grow its funds from operations (FFO) per share by 2% to 3% annually for the foreseeable future. Meanwhile, market rates for power have been rising faster than inflation. Because of that, Brookfield expects to lock in higher rates on new PPAs as legacy contracts expire. The company estimates that this catalyst will deliver an additional 2% to 4% in annual FFO per share growth over the coming years.
On top of that, Brookfield is building new renewable power-generation capacity. The company expects to commission 8 gigawatts (GW) of new capacity this year. It's ramping up its development capabilities to a 10 GW annual run rate by 2027. Development projects should add another 4% to 6% to its FFO per share each year through at least 2030.
Finally, Brookfield routinely recycles capital by selling mature assets and redeploying the proceeds into new, higher-returning investment opportunities. For example, the company recently sold its interest in First Hydro, generating almost 3 times its invested capital.
It also sold an additional 25% stake in its Shepherds Flat wind farm for almost 2 times its invested capital. Meanwhile, it recently closed its acquisition of European renewable energy developer Neoen and agreed to buy National Grid's U.S. renewable energy platform. Accretive acquisitions like those can further boost its FFO per share each year.
Put everything together, and Brookfield Renewable believes it can grow its FFO per share at a rate of more than 10% annually for the foreseeable future. That growth is highly visible and secured through the end of this decade and will be increasingly visible and secured as far out as 2034.
Powerful total return potential
Brookfield Renewable has everything I'm looking for and more in a dividend stock. It pays a high-yielding dividend backed by a rock-solid financial profile. The company also has an excellent record of increasing its dividend, which seems highly likely to continue. On top of all that, it has compelling total return potential.
With a dividend yield of 5% and earnings growing by more than 10% annually, Brookfield could generate total annual returns above 15%, especially given its currently lower share price. That compelling combination of dividend income and upside potential is why it would be the dividend stock I'd buy if I could choose only one this June.
