A Dividend Growth Stock Yielding 6.0% from the Energy Sector
BEP Stock Rewarding Dividend Growth Investors
As an income investor, the number-one goal should be to find a dividend growth stock. This is because the purpose of income investing is to invest in companies that have growing earnings and that share the profits with the shareholders.
Another reason to consider a dividend growth stock is that it provides safety to the dividend, making it unlikely that the dividend will be cut in the future.
A company for dividend growth investors to consider is Brookfield Renewable Partners LP (NYSE:BEP), which has a market cap of $6.5 billion.
Brookfield Renewable Partners specializes in renewable energy, including hydroelectric, wind, and biomass, with assets across North America, South America, and Europe. It became a public company in 2011, and since then has been known as a dividend growth stock. The dividend has seen as increase of 31% every year since 2011.
Eighty-eight percent of the company’s revenue comes from its hydroelectric assets. This is important for dividend growth investors because these assets provide consistent long-term cash flow with large margins. Also, the cash flow from the hydroelectric assets is inflation-indexed. The great news about having such a large amount of cash flow that is dependent on these assets is that there has been no change in the technology, meaning they will generate cash flow uninterrupted.
BEP stock has a competitive advantage in the form of its parent company, Brookfield Asset Management Inc (NYSE:BAM), which has an 18% ownership in BEP stock. Brookfield Renewable Partners is very fortunate for this, should assets such as hydroelectric, wind, or biomass ever be put on sale by a government agency or other company and the balance sheet didn’t support the purchase.
In this case, then Brookfield Renewable Partners could get assistance from the parent company via a joint partnership. This same partnership could come in handy should Brookfield Renewable ever want to sell its assets to generate a higher return on investment by using the funds in another way–and reward dividend growth investors.
The current dividend, paid on a quarterly basis, is $0.445 per share. The shares are yielding 6.09% based on the current market price of $29.25. Investors have also been told to expect a five- to nine-percent growth in the dividend annually, meaning BEP stock is expected to remain a dividend growth stock well into the future. (Source: “Distribution History,” Brookfield Renewable Partners LP, last accessed January 5, 2017.)
Fundamentals of BEP Stock
A great ratio for ensuring you don’t overpay for a company is the price-to-book ratio. This ratio provides how much is being paid for the current stock price while comparing it to the historic value of the assets in the company. For investors, the lower the ratio, the better. According to this ratio, BEP stock is trading at a 33% discount.
Another metric that makes BEP stock an appealing investment is the debt-to-capital ratio. This ratio is used to understand if a company has too much debt or if it is under control. A ratio that is at 50% or above would mean the company has too much debt, with the industry average above this ratio at approximately of 56%. A ratio below 50% means the debt is under control; this is the case for BEP stock, which has a ratio of 46%.
Another reason to consider BEP stock is its 0.23 beta, which is much less than the index’s beta of 1.0. As an investor, this information details how much the stock should move on average each trading day. For example, on a down day, if the market fell by one percent, then BEP stock should see a fall of 0.23%.
Final Thoughts on BEP Stock
Management’s number-one priority is to grow the business with assets that will generate lots of cash flow; this will help management’s second priority, which is to return a growing dividend to investors.
For patient income investors, BEP stock should be considered, based on the history of an increasing dividend, and the company’s assets having a strong cash flow that is predicted to continue.