Stock pick: Brookfield Renewable Energy Partners (BEP.UN) has dividend power

The company’s first European foray comes with some currency risks

0 Premium content image

Chart showing 12-month trailing stock performance for Brookfield Renewable Energy Partners

Toronto’s Brookfield Renewable Energy Partners (BEP.UN) has spent most of its existence operating power plants in North America and Brazil. That all changed on March 25 when it bought a piece of Ireland’s Bord Gais Eirann and its 17 wind projects for $960 million, which includes $280 million in debt.

It’s the first time that the company has made an overseas acquisition and it’s a signal that it wants be a player in the growing European renewable energy market. While the company has talked about wanting a piece of the European pie for some time, investor still reacted negatively to the news. The stock is down about 1.5% from yesterday’s opening bell.

Is this an entry to point to buy? Juan Plessis, an analyst with Cannacord Genuity, isn’t so sure. He has mixed feeling about the deal. In a March 26 report, Plessis said that the purchase does have the potential to add a “few cents” to the company’s annual cash flow per share. It also helps diversify the company’s assets away from North America.

However, by owning a foreign asset the company opens itself up to greater exchange rate risk, he writes. That could be fixed by issuing euro-denominated debt and foreign currency hedges, but nothing has been said on how the business plans to combat this forex challenge. He has a hold rating on the stock and price target of $32—it’s trading at $31 today.

While there may be some short-term risks around this purchase, there is one good reason to own this stock today: its dividend. It has a 5.54% yield—it increased its dividend by 6.9% last quarter — and while more purchases like this one could impede future dividend increases, writes Plessis, you’re still getting an above average payout.

When the company does make purchases, it buys long-life assets that will hopefully generate money for years to come, so this is certainly more of a long-term play. The Irish wind projects that Brookfield bought come with 15-year contracts, writes Plessis.

According to S&P Capital IQ, the average rating is an outperform with the highest 12-month price target at $34. Even if it doesn’t appreciate in value by that much in the short-term, that hefty dividend will give your portfolio a boost.

Leave a comment

Your email address will not be published. Required fields are marked *