Jun 282015
 

Earlier this month I blogged about my plan to help make this world a greener place by supporting renewable energy initiatives. One way to do this profitably is to invest in green companies. On Thursday this past week I purchased 50 shares of Brookfield Renewable Energy, (BEP.UN) for $38.05 CAD each for a total cost of roughly $1,900. It also trades as BEP on the New York Stock Exchange for interested investors in the U.S.

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This is my first investment in a pure-play renewable energy company. Brookfield Renewable develops, owns, and operates renewable power generation facilities. It’s one of the largest and most diversified publicly traded green companies in the world. BEP has a diversified portfolio of high quality assets and over 100 years of power generating history. 🙂

The Business of Brookfield Renewable Energy

I’ve always like the idea of investing in B.C. Hydro or Ontario Hydro because the idea of creating electricity through the power of nature itself (water and gravity) and then selling that electricity to make money sounds like a great business model. The profit margin must be very profitable because once a hydro dam is built it doesn’t cost much to maintain it. But there’s no practical way for me to invest in crown corporations and government operated hydro facilities. Luckily, Brookfield Renewable has the solution. 🙂

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BEP has over 7,000 MW of installed capacity, predominantly from its large hydroelectric portfolio. This means I can invest in water dams via BEP. 🙂 80% of the company’s assets is hydro projects, the highest quality renewable asset class. The other 20% is split between solar farms and wind farms with a compelling total return profile. In total Brookfield Renewable has $20 billion of assets under management (AUM,) mostly in North America, as the map below shows.

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Investment Returns

But ultimately what I really want to know is will this company be profitable in the future. First let’s look at its historical returns. Thanks to the experienced management team at the Brookfield Asset Management company (BAM), the parent company of Brookfield Renewable, BEP was able to return to its investors 16% compounded annualized return since inception in 1999. Hey not bad at all! 😀 It outperformed both the Canadian and U.S. stock market indexes.

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But past performance doesn’t also reflect future gains so let’s take a look at what management plans to do with the company going forward. BEP’s main objective is to deliver long-term gross returns of 12% to 15% on a portfolio basis. The company says it seeks to keep a distribution growth target of 5% to 9% a year and a payout ratio of 65%. Currently BEP.UN pays a 5.5% dividend. Since it’s in my TFSA I don’t expect to pay too much tax on the distribution. We also know from its website that Brookfield Renewable deals largely with cash flow contracts. This means its customers are obligated to buy electricity from BEP at a predetermined price for a set number of years. The weighted average of these agreements is 18 years. This takes a lot of risk out of current and future revenue fluctuations. 🙂

Risks

As with all renewable energy companies BEP faces resource risk. Climate change could alter landscapes, change wind patterns, and dry up rivers and lakes in the future. A financial world of rising interest rates can also be a concern since BEP does use leverage and borrow money to finance its projects.

Given the strong track record of the management team, and the increasing demand for green energy the pros of investing in BEP outweigh the potential risks. With a portfolio of high-quality assets, strong growth opportunities and a significant pipeline of development projects, I believe Brookfield Renewable Energy is positioned to produce attractive long-term total returns with growing cash flows and distributions to shareholders, exactly what I want for my buy-it-and-forget-it retirement portfolio. 😀

In case anyone is interested in further reading about BEP here is its latest investor presentation

[Edit] I bought 29 more shares of BEP.UN for $36 each on July 28th 2015. This is to hold enough units for the DRIP. [/Edit]

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Investing Pursuits
06/28/2015 4:49 pm

Liquid,

This seems to be a great buy. This in a TFSA or RRSP? That is a great yield and this is definitely a safer investment then Just Energy, which I own.

If you own shares in Emera, you have exposed to green energy via solar panels, wind energy and hydroelectric.

fred
fred
06/29/2015 4:11 am

Does this have some weird tax paperwork associated with the dividends since it is a “LP” ?

Roadmap2Retire
06/29/2015 5:42 am

Nice purchase, F35. Ive been reading up on the Brookfield set of companies and it sure is a confusing corporate structure. I am hoping to figure out a few more details before I put some money to work in this great sector of the economy.

cheers
R2R

My Own Advisor
06/29/2015 8:13 am

Well done. Own some as well and looking to buy more and more and more 🙂

Giselda
Giselda
06/29/2015 8:53 am

Two questions that cannot be answered from what you wrote so far:

– if it trades on the TSX but is not a Canadian company, does this mean that you don’t pay a dividend tax if it is held in the TFSA?

– the P/E ratio for this company is about 150, which is 6-7 times more than the market average. How can you buy an asset signaled by the P/E ratio to be vastly overvalued?

Investing Pursuits
06/29/2015 11:55 am
Reply to  Giselda

A P/E ratio is not an effective way to evaluate MLP. Click on the below link and there is a section “What is Distributable Cash Flow (DCF) and why is it a better way to value MLPs than earnings and P/E ratios? ”

http://www.forbes.com/sites/investor/2011/07/12/a-guide-to-high-yield-havens-master-limited-partnerships/

roadmap2retire
roadmap2retire
07/10/2015 5:23 am

Shouldnt the taxes from other various countries already be accounted for by the company before the dividends are declared? For e.g., I own BNS in my TFSA account – which has revenues coming in from 55 countries and all the taxes are accounted for – before the dividend is declared and paid out.

The dividend in BEP’s case will be different each quarter because of the exchange rate as they declare in US$ and are paid out in CAD$ depending on forex rates on the date of declaration.

R2R

Tawcan
06/29/2015 1:35 pm

It’s an interesting company that’s for sure. I came across it when you mentioned it a while ago. Definitely need to pay more attention and do some more research myself. I like the idea of investing in renewable energy.

My Road to Wealth and Freedom
06/30/2015 4:58 am

Nice post Liquid. I didn’t really know much about BEP but had looked at its parent company BAM recently. I like the 5.5% yield and I think it’s something I might look into further. Thanks for sharing this informative post.

Michelle (@BudgetBloggess)
07/02/2015 5:16 pm

Great post! I have a bit of my portfolio in BEP, they’ve been performing well compared to others in the sector. Always happy to support green energy. Got my first dividend (I think?) from them but my brokerage did some weird crap with it. Who knows?!

trackback
01/04/2016 5:51 am

[…] Brookfield Renewable. – Bought $3,000 between June and July. Liking the long term sustainability strategy. Returned about 2% so far. I’ll take it! […]

Mary
Mary
04/07/2016 8:57 am

I am a Canadian senior who I would like to buy some Brookfield Renewable Energy Partners units for my retirement income portfolio but don’t like the look of its extremely high P/E ratio, compared to all the other companies I hold in this portfolio, which mostly have a P/E under 20. What do I not understand about this company’s P/E? Why is its P/E well over 1000 (!!!!) yet it remains so popular for both private and otherwise conservative institutional investors?

Liquid Independence
Admin
04/12/2016 11:51 pm
Reply to  Mary

Hi Mary. I think BEP.UN’s P/E ratio is so high because it’s throwing all its profits back into the company to pay for equipment and resources in an attempt to grow top line revenue. Just like other stocks with high P/E ratios such as Amazon, Brookfield Renewable could probably make a decent profit if it wants, but decides it’s better to invest in itself.