#1 Dividend King To Buy Next Month

The demand for artificial intelligence and cloud computing is growing exponentially, but the data centers that power those technologies require massive amounts of energy. At the same time, more organizations are looking for renewable energy sources to meet zero emission initiatives.

Brookfield Renewable Partners (NYSE: BEP) stands out as an interesting play in this area given its ownership of a portfolio of alternative energy solutions including hydroelectric, solar, and wind segments.

In 2021, renewable energy stocks surged and BEP was caught up in the surge, driving its share price up to all-time highs at just under $50 per share, but investor sentiment has cooled in subsequent years. After slipping 2.7% year-to-date, Brookfield Renewable shares are now trading at roughly half that level.

Investors have been concerned about a series of net losses in the last few quarters, but Brookfield has continued to grow its revenue and funds from operations.

The company has invested heavily in its portfolio, and it has more than enough liquidity to see it through until its plans reach fruition. In addition, Brookfield Renewable has cemented its status as a dividend king after years of rewarding its shareholders, so what makes this dividend king worth buying?

$4.6 Billion in Cash and Growing Revenues

Brookfield’s $1.47 billion in revenue in the third quarter represented a 24.7% year-over-year increase. It also increased its FFO by 11% from last year, up to $278 million or $0.42 per share. Brookfield attributed its FFO growth to asset development, acquisitions, and strong pricing.

The company’s hydroelectric segment delivered FFO of $96 million in Q3, and Brookfield said it inked two “favorable contracts” with U.S. utilities in the quarter. The company expects those contracts to have a significant impact on annual revenue and increase overall FFO.

Brookfield’s wind and solar segments produced FFO of $207 million combined, another year-over-year improvement. The company also had $115 million in combined FFO from its distributed energy, storage, and sustainable solutions segments which benefited from the company’s contracts with Westinghouse.

The company ended Q3 with $4.6 billion in cash and cash equivalents, and Brookfield has leveraged its capital in several energy plays over the past few years. The company said it executed transactions that generated approximately $2.3 billion in revenue in the third quarter, which was 2.5 the company’s initial investment.

Brookfield Divesting Assets To Support Balance Sheet

Brookfield’s September sale of Saeta, a company it acquired in 2018 for $1.4 billion, has netted the company three times the capital they invested six years ago.

Brookfield also sold its 25% stake in UK hydro leader First Hydro. Brookfield bought its shares in 2017, and it said the $350 million sale would net Brookfield $100 million, and generate over 3.5 times the company’s initial investment. Brookfield also sold its 50% share in its Shepherds Flat wind portfolio, doubling its invested capital.

While the company was an active seller, Brookfield made substantial purchases in Q3 as well. The company said 2024 will be their largest year for investments into growth, with over $11 billion in equity, netting roughly $1.5 billion, and is committed and deployed year-to-date.

In addition to its investment gains, Brookfield believes it can grow its FFO per share by more than 10% annually for the next decade. The company believes its business outlook will continue to improve, driven by its strong market share and the demand for power.

However, despite revenue and FFO growth, the company has continued to face deepening net losses over the past few quarters. Brookfield Renewable’s $162 million loss in Q3 was 260% worse than last year, and the net loss was 20% worse than the $135 million net loss the company faced last quarter.

How Analysts Rate Brookfield Renewable Stock?

Despite profitability concerns, Wall Street analysts are still largely in Brookfield Renewable’s corner. Out of 15 analysts who have rated the stock, 10 rate BEP as a Buy at this price point.

The highest price target is $39 per share, which represents a 56.1% increase over the next 12 months. The average price target has Brookfield Renewable shares rising 26.4% to $31.57 over the coming year.

There are currently no Sell ratings on the stock, but four analysts assess BEP to be a Hold. The lowest forecast has Brookfield shares dropping 19.9% to $20 in the next 12 months.

Is Brookfield Renewable Stock Undervalued?

Wall Street largely believes that BEP is undervalued, a belief that would seem to be substantiated that by the stock’s 1.45 price-to-sales ratio, which comes in lower than the S&P 500’s 2.8 P/S value.

However, BEP’s most attractive feature is its dividend. Some investors might be concerned that after a period of unprofitability, Brookfield Renewable might consider reducing its quarterly payout.

While no dividend is ever guaranteed, Brookfield has paid a dividend every quarter for over a decade. The stock currently has an impressive annual dividend yield of 5.6%, which amounts to a quarterly payout of $0.35 per share.

One point of concern here is the payout ratio of -313% which calls into question the sustainability of the $1.42 annualized payout, paid quarterly. In addition, 11 of the past 12 quarters have reported negative free cash flows.

#1 Dividend King to Buy Next Month

Brookfield Renewable Partners is a top dividend king to buy next month with its 5.68% dividend yield and trading over 20% below analysts fair value of $31.57 per share.

To achieve dividend king status is no mean feat and BEP appears to be in no jeopardy of losing that anytime soon thanks to consistent increases in revenues and FFO.

The company has shown strong returns on capital and has plenty of cash but profitability struggles are a fly in the ointment, and likely a catalyst for BEP share price falling this year.

One strong tailwind supporting demand for energy going forward is datacenter related to AI. Many top tech companies are also looking for clean energy sources to meet their emissions goals and that makes Brookfield an attractive option for investors.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.