BEP Stock Has a High-Yield Dividend of 5.93%
Collect a Growing Yield from BEP Stock
Income investors are always looking for high yield dividend stocks. The one concern before deploying capital into a stock, however, is whether the dividend is sustainable.
The easiest thing to do is make an investment decision based on a stock’s price and current dividend yield. But this is only part of a proper investment decision process, which has multiple steps to determine the ultimate potential of a dividend paying stock.
Following this theme, I have searched for, found, and researched a company that offers both a steady and reliable income source and growth: Brookfield Renewable Partners LP (NYSE:BEP).
Let me explain the company’s operations before getting into the dividend information.
What’s the Business Model?
Brookfield Renewable Partners owns and operates renewable power assets, including hydroelectric and wind power producers, both of which are used to generate electricity for the general population. The company has assets in North and South America, as well as in Europe.
These assets spit out a large amount of cash flow at a steady and reliable rate. A large capital investment is required at the start of each project but, outside of maintenance fees, costs beyond this are minimal.
Approximately 90% of the earnings are predictable because they are based on current contracts. The average length of a contract is 17 years, so there is no short-term risk for the earnings and cash flow from traditional business operations. This keeps the dividend steady as well. (Source: “Investor Fact Sheet,” Brookfield Renewable Partners LP, last accessed May 14, 2017.)
Steady and Reliable Dividend Payment
BEP stock is in a category of high yield dividend stocks that has been growing year after year. The yield on BEP stock is 5.93%, compared to the S&P 500’s yield of 2.2%. The S&P 500’s dividend yield is used as a benchmark when comparing stocks because it provides broad-based sector representation.
The company pays a quarterly dividend to shareholders, which accounts for an approximate targeted payout of 70% from its annual cash flow. When earnings are growing, it means the payment is increasing as well. This is similar to the concept of inflation-protected earnings.
The management team also has a target of raising the dividend by five to nine percent every February, when the dividend policy is reviewed. The share price should be bid higher over time, as more investors notice that BEP stock is a dividend grower.
The evidence of the dividend and share price growing is in the numbers. Over a 10-year period, a $10,000 investment in BEP would now be worth $37,206, which is a 372% return based on growth and the dividend being reinvested into the stock. In comparison, a $10,000 investment in the S&P 500 would now be only $19,540, which is a return of 195%. In other words, BEP stock has almost doubled the return of the S&P 500 over the same period, a trend that looks to be able to continue.
Characteristics of BEP Stock
Here are three reasons to consider BEP stock in addition to the regular dividend. All these characteristics are tied to the business model and to BEP being a utility stock.
1. Performs Well in a Poor Stock Market
In a booming economy, almost every stock will perform very well while, in a recession, market returns tend to be negative. This is because many companies’ earnings tend to go in the same direction of the overall economy. Since Brookfield’s services are needed regardless of how well the economy is performing, its earnings feel no negative impact due to the economy at large. In poor market conditions, it will even outperform the market.
2. Earnings Are Inflation-Protected
The earnings that Brookfield generates are steady and protected from inflation. How it works is that inflation affects maintenance and general costs, shrinking margins. To combat inflation, Brookfield increases what it charges the end user, keeping the margins strong and steady. This also means more dividend hikes, since there is greater top-line revenue.
3. Favorable Competitive Environment
Brookfield operates in an oligopoly, with only few direct competitors, which accounts for its large market share. But, while competitors are in the same countries, Brookfield is in different geographic locations within those countries. This keeps Brookfield’s market share strong and large.
Final Thoughts on BEP Stock
Brookfield Renewable Partners is one of my favorite stocks in the utility sector. The act of rewarding shareholders with a dividend signals to the market that the company is shareholder-friendly, which is a very important aspect to consider when deploying capital into a stock that many investors tend to forget.