In the face of the continuing global uncertainties like the declining European economy, Russian sanctions, market corrections, devastating results by market bigwigs in Q3, surprise companies springing out of nowhere has made investing more confusing than ever. All the previous theories of portfolio building are being proven wrong and while super cap companies are nose diving smaller companies are making brisk business. Also with the falling oil prices the future of oil companies are looking murkier than ever. In such a situation deciding ratios of a portfolio is getting increasingly difficult and the streets are abuzz with news of portfolio reshuffles and strategy restructuring. Even the king of investment Warren Buffet’s holding in International Business Machines (IBM, Financial) is being debated in the market owing to IBM’s disastrous Q3 results. If we categorize companies from portfolio perspective they can be classified into two major types - Quantitative Investing and Socially Responsible Investing.
Of these the most preferred to find a place in our portfolios are the quantitative companies as they are known for their ability to generate business numbers. On the other hand ‘Socially Responsible’ companies are less likely to churn out huge business yields as they are more focused towards green initiatives and addressing qualitative aspects of life in general.
The Business Stats of Brookfield
It seldom happens that a company features highly on both quantitative and social responsibility aspect. As both of them are commonly known to be inversely proportional. But Brookfield Renewable Energy Partners LP (BEP, Financial) seems to be running beyond common notions and proving to be a strong contender in terms of investment portfolios.
Brookfield is not an MLP or a corporation/trust but it represents shares of a Bermuda based Limited Partnership in which the units trade in the US stock exchange.
Distribution channels receive quarterly payments at the rate of $ 0.3875 per unit or $1.55 annually per unit, summing up to a current yield of 4.9%.
On September 15, 2014 the company declared that they will step up their targeted distribution growth rate of 3% to 5% per annum to 5% to 9% per annum while still hold on to the current payout ratio of 60% to 70%.
Owing to the complex taxation process of its distribution network it is not sound to buy them in taxable accounts rather it would be best to buy in ownership position in tax deferred accounts like IRAs and thus ensure hassle free and tax-burden less holding in the company. Brookfield functions majorly in hydro and wind power generating systems in the US, Brazil, Europe and Canada. Let us take a look at the numbers of Brookfield.
Market Cap for the company stands at $8.6 billion. Price per share is currently standing at $29.9 and the price to book value is pegged at 2.89%. Its market estimated revenue growth is about 6% which is a steady and commendable growth projection for a company in the niche energy sector.
Our Take
Brookfield would add depth and stability to the investment portfolio owing to its median performance in all quartiles of investment. The company has the potential to be a significant contributor to portfolio Alpha over the next 3-5 years via a combination of dividend, dividend growth and capital gains. Though it is a very uncommon for a green company making good business numbers Brookfield holds a steady option in terms of investment. But only one thing which can be a reason of worry is its debt to equity ratio which can be a reason of concern though it is not just a one off case for the company but typical of the companies operating in this segment. Brookfield stands at a debt to equity ratio of 82% which is high from the number perspective and if there is a disruption in revenue at any point it has the risk side of debt. So our guidance is not to buy positions in the company in bulk at one go but to buy in small packets from time to time to render stability to the portfolio but with a strong vigil on the EPS of the company at regular intervals.
