Pulled down by volatile oil prices, the Canadian dollar is now worth just 72 US cents, its lowest level since early 2016. The currency’s decline has pulled down the US dollar value of best in class Canadian stocks, explains Roger Conrad, editor of Conrad's Utility Investor.
That includes contract power producer Brookfield Renewable Partners LP (BEP), our top conservative idea for the coming year.
The silver lining is another prime opportunity for conservative investors to lock in this company’s roughly 7.5 percent yield, which is reliably growing 5 to 8 percent a year. Brookfield’s stable growth is built on very solid, long-term foundations. That’s a major plus heading into uncertain 2019.
The company’s 17 gigawatts of power generating capacity and 8 GW development pipeline is almost entirely contracted to utilities and government entities. All of the facilities are among the least cost sources for their respective regions.
All of it is hydro, wind or solar, meaning current and future environmental concerns are minimal. And while output can vary with weather conditions, facilities also have long track records for reliability.
Second, Brookfield has a very strong financial position on its own with a BBB+ credit rating. And it has a very supportive general partner and 31 percent owner in A- rated Brookfield Asset Management (BAM). That backing has enabled Partners to make large acquisitions, while waiting on favorable capital markets to complete financing.
A case in point is the acquisition by family of 65.34 percent of yieldco TerraForm Power (TERP), which in turn allowed the latter to buy the former Saeta Yield. That deal will lift Brookfield’s funds from operations by 10 percent going forward.
Nor is the company a serial acquirer. Following the TerraForm deal and several other expansion moves such as European solar expansion, management announced CAD850 million in asset sales. That’s the latest installment of its “asset recycling program” to take advantage of global appetite for renewable energy facilities.
Those sales limit Brookfield’s need to access what have become hostile capital markets entering 2019. So will more than $700 million in guidance operating free cash flow after capital spending, an amount sufficient to cover rising dividends by nearly a 2-to-1 margin.
Brookfield Renewable is priced in Canadian dollars, though dividends are paid in US dollars. But improved oil prices should help currency become an upside driver in 2019, in addition to the high dividend and reliable dividend growth. Note the company now sends a K-1 at tax time, a possible inconvenience to taxable accounts more than offset by tax advantages. Buy up to $35.
