Stock market weakness provides you with an opportunity to buy at lower prices and higher yields. Buy low, sell high. Sounds simple, but can you do it? Here’s a high-quality power generation income trust that will pay you close to 7 per cent, plus, if you like to support the green movement in your investing, it’s a pure-play renewable power generator.
We think the October stock market sell-off presents you with a buying opportunity if you have money to invest and you won’t need it for at least the next five years. That’s because sell-offs give you a chance to buy high-quality stocks at lower prices.
And it’s also true if you’re an income investor. Lower prices, after all, translate into higher distribution and dividend yields. That means every new dollar you invest will generate more income than it did just a month ago, or even in mid-July when the S&P/TSX Composite Index reached an all-time high.
Take, for example, Brookfield Renewable Partners L.P. (TSX—BEP.UN). At its current price, Brookfield’s yield is approaching seven per cent. That’s a more generous payout than the 6.2 per cent it yielded in August, or the 5.4 per cent it yielded late last year.
Brookfield operates one of the world’s largest publicly-traded, pure-play renewable energy platforms. Its portfolio consists of hydroelectric, wind, solar and storage facilities in North and South America, Europe and Asia.
We expect increasing funds from operations, or FFO, to support a rise in Brookfield’s unit price over time. So far this year, FFO has continued to increase, but not as much as expected. For the six months ended June 30, 2018, Brookfield’s FFO was US$365 million (all figures in US dollars unless otherwise indicated), or $1.17 a unit, compared with $347 million, or $1.16 a unit, in the same period of 2017.
The increase reflected contributions from growth in Brookfield’s portfolio, higher realized prices and cost-reduction initiatives.
In the second quarter, however, FFO declined five per cent year over year to $172 million. This decrease was caused by lower generation at the company’s North American hydroelectric facilities due to weak hydrology, as Ontario and New York experienced lower rainfall.
But if the numbers are changed to reflect long-term average generation, normalized FFO would have risen just over 21 per cent to $206 million.
The long-term outlook for FFO growth is positive. Despite declines in subsidies, governments around the world continue to set higher renewable targets. This gives Brookfield opportunities to continue growing its operating capabilities and global business. For example, the company estimates that replacing the non-renewable capacity in its core markets with wind and solar will require over $10 trillion of investment. The opportunity to invest and grow its businesses, then, should be substantial for decades to come.
Brookfield Renewable Partners’ units yield close to 7 per cent. It’s a buy for growth and income.
This is an edited version of an article that was originally published for subscribers in the November 2, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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