I can’t stop buying shares of this high-yield dividend stock. This is why I plan to buy even more in 2024.

By | December 21, 2023

A hand drawing money signs and an upward arrow on a blackboard.

I have collected shares of Brookfield Renewable (NYSE: BEPC)(NYSE:BEP) for a number of years, and the sustainable energy giant has become one of my biggest roles. Because of that and its high-yielding dividend, it is one of the biggest income producers in my portfolio.

Although I already have a meaningful allocation, I plan to continue expanding my position next year. This is why I can’t stop buying these prime income stocks.

A sustainable payout

Brookfield Renewable’s main draw is its dividend, and it has the three things I look for in a dividend stock:

  • An above-average yield: The yield of 4.7% at the current share price is a lot higher than that of most stocks. For comparison: the dividend yield on the S&P500 is around 1.5%.

  • Sustainability: Brookfield generates a lot of recurring cash flow, has a reasonable dividend payout ratio and has a strong balance sheet.

  • Dividend Growth: The company has increased its payout by at least 5% per year over the past twelve years.

I’ve learned the hard way over the years that a high-yield dividend is only worthwhile if the underlying company can sustain that payout. Brookfield has gone to great lengths to ensure the sustainability of its dividend. It all starts with the company’s cash flow. Brookfield sells most of the electricity it produces under long-term, fixed-rate power purchase agreements (PPAs), with 90% of the electricity under contract for an average of 13 years. About 70% of those contracts link rates to inflation. These inflation-linked PPAs alone will add 2% to 3% to funds from operations (FFO) per share per year.

Brookfield also has a diversified portfolio based on technology (hydro, wind, utility-scale solar, distributed generation and energy storage), geography (North and South America, Europe and Asia Pacific) and customers (utilities and corporate buyers). ). This diversification helps reduce risks while improving growth prospects.

Finally, Brookfield has a balance sheet that resembles a fortress. The company has a good one bond rating (BBB+) has virtually all of its debt (98%) at a fixed rate, with no material short-term debt, and has significant liquidity ($4.4 billion at the end of the third quarter). This gives it the financial flexibility to invest in development projects and make value-enhancing acquisitions. Brookfield also routinely recycles capital by selling mature assets to finance new investments with higher returns. The company has raised $600 million from asset sales over the past 18 months to fund new investments.

Strong growth and total returns

Brookfield Renewable’s high-yield dividend is only part of its appeal. The company has an excellent track record of increasing shareholder value by increasing profit and dividend payments. Over the past decade, Brookfield has grown its FFO per share by more than 10% annually. That has given the country the power to increase its dividend payments at a compound annual rate of 6%. This combination of growth and revenue has resulted in an average of 13.7% annualized total refund over the past decade (exceeding the S&P 500’s average annualized total return of 12.3%).

The company is in an excellent position to further grow shareholder value. Brookfield has a quartet of growth engines that should drive growth of more than 10% FFO per share until at least 2028.

A chart showing Brookfield Renewable's growth drivers through 2028.A chart showing Brookfield Renewable's growth drivers through 2028.

Image source: Brookfield Renewable.

Brookfield’s inflation-linked contracts provide a nice base growth rate. Meanwhile, margin improvement activities, such as locking in higher energy rates when old contracts expire, will further increase cash flows from existing portfolio assets. In addition, Brookfield has an extensive pipeline of renewable energy projects in development that will further grow cash flows. Finally, acquisitions can provide a meaningful boost to operating results. It has completed three deals in recent months (with more in the pipeline), which should give it the strength to deliver more than 10% FFO per share growth in 2023 and 2024.

The company’s growing cash flow should allow it to continue increasing its high-yield dividend. Brookfield’s long-term goal is to increase its payout by 5% to 9% annually. Add that high-yield and steadily rising payout to the company’s growing profits, and it should have the fuel to continue generating double-digit total annual returns.

The complete package

Brookfield Renewable checks all the boxes for me. It pays a sustainable, high-yield dividend that should continue to rise at a decent clip as the company’s profits grow. With a yield of almost 5% and earnings growth of more than 10%, it should have the power to generate double-digit total returns on an annualized basis. That combination of low risk and the chance of high returns is the reason I continue to buy shares of this sustainable energy giant.

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Matthew DiLallo holds positions in Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool holds positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

I can’t stop buying shares of this high-yield dividend stock. Here’s Why I Plan to Buy Even More in 2024. was originally published by The Motley Fool

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