Rising Distributions From BEP Stock
No matter what your opinion is on the subject of climate change, it’s hard to deny that the renewable energy industry has been booming. For those who want to get a piece of the action, here’s a dividend stock to consider: Brookfield Renewable Partners LP (NYSE:BEP).
Brookfield Renewable Partners operates a portfolio of hydroelectric, wind, and solar energy production and storage facilities in North America, South America, Europe, and Asia. It has a total installed capacity of 18,900 megawatts and an 4,800-megawatt development pipeline. (Source: “Investor Day,” Brookfield Renewable Partners LP, September 26, 2019.)
The company is listed on the Toronto Stock Exchange and the New York Stock Exchange, and is one of the largest publicly traded, pure-play renewable energy stocks in the world.
Of course, there are plenty of more exciting stocks on the market, and Brookfield Renewable Partners isn’t really a name that makes headlines often. Still, those who have been holding this renewable energy stock have seen some serious returns. Since the beginning of this year, BEP stock has surged more than 67%.
And like I said, this is a dividend stock, so investors don’t need a soaring unit price to earn a return. The partnership recently declared a quarterly cash distribution of $0.515 per unit, which will be paid on December 31 to unitholders of record as of November 29. (Source: “Brookfield Renewable Announces Third Quarter Results, Unit Split and Creation of an Exchange Corporation,” Brookfield Renewable Partners LP, November 11, 2019.)
At the current price, that comes out to a generous annual distribution yield of 4.6%.
Given that the average S&P 500 company pays less than two percent right now, Brookfield Renewable Partners is truly a high-yield stock.
What’s more exciting than BEP stock’s yield, though, is how the payout has been going up over the years.
Consider this: in 2012, Brookfield Renewable Partners had a quarterly distribution rate of $0.345 per unit. Today, it is paying $0.515 per unit. That means, in the past seven years, the partnership’s per-unit payout has increased at a compound annual growth rate (CAGR) of around six percent. (Source: “Distribution History,” Brookfield Renewable Partners LP, last accessed November 12, 2019.)
And yet, BEP has no problem backing its rising distributions. The reason is simple: during the past seven years, the partnership’s funds from operations (FFO) per unit grew at a CAGR of over 10%. (Source: Brookfield Renewable Partners LP, September 26, 2019.)
According to the company’s latest earnings report, Brookfield Renewable Partners generated $590.0 million in FFO in the first nine months of 2019. The amount represented a 25.5% increase year-over-year. (Source: Brookfield Renewable Partners LP, November 11, 2019.)
During this period, it paid $515.0 million in actual cash distributions. As a result, it had a FFO ratio of around 87%, leaving a margin of safety.
Is the Best Yet to Come for Brookfield Renewable Partners LP?
Of course, Brookfield Renewable Partners achieved those numbers in the past, and past performance is no guarantee of future results. Going forward, will BEP stock keep delivering oversized cash returns to investors?
I believe the answer is “yes.”
You see, taking into account inflation escalation; margin enhancement; development and repowering; and acquisitions, BEP expects its FFO per unit to keep rising at a CAGR above 10% through 2024. (Source: Brookfield Renewable Partners LP, September 26, 2019)
For a partnership that’s willing to return cash to investors through regular distributions, such an impressive growth rate will likely translate to more payout hikes.
Indeed, its latest earnings release made it clear that “Brookfield Renewable targets a sustainable distribution with increases targeted on average at 5% to 9% annually.” (Source: Brookfield Renewable Partners LP, November 11, 2019, op. cit.)
Therefore, if an investor purchased BEP stock today, in a few years’ time, they would likely collect an even higher yield on cost than the current 4.6%.
And if the partnership’s unit price keeps trending upward, investors could earn capital gains on top of those oversized distributions.