Brookfield Renewable Partners LP: At Last, a 7% Yield You Can Count On
January 28, 2019
A Reliable Dividend Stock
Brookfield Renewable Partners LP (NYSE:BEP) wants to do a lot of good for the planet—and investors.
As its name implies, the partnership owns a portfolio of renewable energy businesses, including wind farms, solar plants, and hydroelectric dams. Investors love these assets for their reliable cash flows and thick profit margins.
And with a yield approaching seven percent, it’s no surprise that income hunters have taken notice. But can you really trust a yield this good? Let’s dig into the financials.
BEP Stock: A Safe 7% Yield?
Brookfield cranks out ample cash flow. Last year, the business generated $750.0 million in funds from operations and paid out $652.5 million in distributions. That comes out to a payout ratio of about 90%.
Generally, I like to see companies pay out 90% or less of their earnings as dividends. In other industries, such as cyclical sectors like autos, energy, or mining, a payout ratio this high would present a big red flag.
No doubt, Brookfield Renewable Partners LP’s distribution sits at the upper end of my comfort zone. Utilities, however, are the ultimate recession-proof business. So while I’d like to see executives leave themselves more wiggle room, unitholders have little to worry about.
Management’s conservatism also extends to the balance sheet. The partnership has borrowed $2.53 in debt on every dollar in equity. That stands as one of the least levered balance sheets in the industry.
More importantly, executives have locked in more than 90% of this debt at today’s low interest rates. So if yields rise, Brookfield will see almost no impact on cash flows.
The Bottom Line on BEP Stock
This strong balance sheet gives management a lot of flexibility to run their business. It also reduces the risk of any dividend cut.
The biggest risk here? Politics.
Brookfield Renewable Partners LP has plowed billions of dollars into new wind and solar projects. The profitability of these investments depends to some degree on government subsidies.
If politicians globally dial back their commitment to fighting climate change, renewable energy projects will look less attractive. That could reduce the pace of Brookfield’s distribution hikes—and likely, by extension, its unit price.
That said, this partnership stands in solid financial shape today. That will likely mean a steady stream of dividend checks for holders of BEP stock.
