With its renewable power, this company has strong conceptual appeal for investors. But just as important—especially considering the pandemic—is its diverse mix of hydroelectric, wind and solar power.
When paired with long-term contracts, this mix generates stable cash flows and enables the firm to continue building up its operations and adding to your distributions.
BROOKFIELD RENEWABLE PARTNERS L.P. (Toronto symbol BEP.UN; www.bep.brookfield.com) investors gain exposure to over 222 hydroelectric generating stations, 119 wind farms, 84 solar-power facilities, and 5,527 distributed generation and energy storage sites.
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Over the last decade, Brookfield has cut its risk for investors by diversifying its operations across hydro, wind and solar, as well as geographically. It now sells power to over 600 high-quality customers. Currently, the company sells 95% of its power under guaranteed contracts with public power authorities and utilities (with an average contract length of 14 years). Meanwhile, Brookfield has access to over $3 billion in cash and credit lines. That will let it weather any further COVID-19 disruptions, but also seek out timely acquisitions, perhaps at distressed prices.
In the quarter ended September 30, 2021, stronger power generation and acquisitions pushed up cash flow per unit by 32.0%, to $0.33 U.S. from $0.25 a year earlier.
Earlier, Brookfield sold some U.S. onshore wind assets for $733 million U.S. to NextEra Energy (New York symbol NEP). The sale reflected the company’s belief that solar assets have a better future than wind projects.
As part of that strategy, the partnership plans to invest $70 million U.S. in a 450 MW solar project from a prominent developer in India. When completed, the project will have a 25-year power agreement with an Indian utility.
Meanwhile, the company has also agreed to buy a portfolio of solar assets from U.S. energy giant Exelon Corp (Nasdaq symbol EXC).
The additional 360 megawatts of solar electricity production is spread across nearly 600 sites throughout the U.S. The assets also include 700 megawatts under development. The total purchase price is $810 million U.S.
The portfolio gives Brookfield a total of 2,000-plus megawatts of solar power production.
Following the deal, solar power will make up 9% of Brookfield’s cash flow, and the partnership plans to keep expanding in that area. Meanwhile, the Excelon assets are all contracted under long-term power purchase agreements. That cuts the risk of the acquisition.
Brookfield also recently secured a new long-term contract to supply electricity to Plug Power Inc. (Nasdaq symbol PLUG). That firm makes hydrogen and fuel cell products for industrial businesses in the U.S. and Canada. One primary use of its fuel cells is to power forklifts and other machinery-handling equipment in warehouses.
With the March 2021 payment, Brookfield raised its quarterly distribution by 5.0%, to $0.3038 U.S. a unit from $0.2893 U.S. The new annual rate of $1.215 U.S. yields a solid 3.7%. The partnership aims to raise the annual payment by 5% to 9% each year.
Brookfield will probably report cash flow of $1.41 U.S. a share for all of 2021. That implies a payout ratio of 86.2%, which is above its 80% target. However, the partnership expects its cash flow will rise 10% annually from 2021 to 2026.
Recommendation in Dividend Advisor: Brookfield Renewable Partners L.P. is a buy.
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