My best stock of renewable energy to buy in December

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Renewable energy stocks have certainly had a great year 2020. As the year draws to a close, several major renewable energy stocks look set to crush the market. S&P 500 Indexthe return of the year. Whether you missed out on adding to your renewable energy portfolio or just wanted to develop it further, now may be the time to do it. Brookfield Renewable Power (NYSE: BEP) (NYSE: BEPC) would be a great addition to your portfolio. Let’s see why.

Top-notch performance

Brookfield Renewable is one of the largest in the world renewable energy companies with operations in North and South America, Europe and Asia. Its operations are diversified across all major renewable sources, including hydropower, wind and solar, although nearly two-thirds of its portfolio is hydropower. This mix could change soon, however, given Brookfield’s inclination towards solar power. He recently announced an important agreement to acquire all Exelon distributed solar assets.

Brookfield Renewable has done an impressive job increasing its revenue over the years. In addition to organic growth, the company has made numerous asset acquisitions to fuel this growth.

BEP Income (Quarterly) given by YCharts

The company has also increased its operating funds over the years, as shown in the chart above. In the last trimester, he increased its operating funds by 18%.

Brookfield Renewable continues its growth initiatives. He completed the merger with TerraForm Power in July. The cash-generating merger strengthens Brookfield Renewable’s wind and solar operations in Europe and North America. In addition, it recently acquired a large solar project in Brazil, which is more than 75% contracted. In total, Brookfield Renewable completed transactions requiring $ 250 million in investment during the quarter. These investments should continue to fuel the growth of the company over the coming years.

Growth prospects

Over the next five years, Brookfield Renewable expects to grow its funds per unit from operations by more than 10%. It has increased its FFO at a CAGR greater than 10% over the past decade.

In addition, the company aims to provide its shareholders with annualized total returns of 12% to 15% over the long term. This includes an annual distribution (or dividend) growth of 5% to 9% from organic and project cash flows.

Solar panels and wind turbines in a natural landscape.

Image source: Getty Images.

The firm’s returns-based approach can be attributed to its parent company Brookfield Asset Management, which owns approximately 60% of Brookfield Renewable Partners. The experienced asset manager provides strategic direction to Brookfield Renewable and oversees its funding decisions. This is a key factor that likely sets Brookfield Renewable apart from many other renewable energy operators who are struggling to increase their cash flow. In order to expand its investor base, Brookfield Renewable Partners has created a Canadian company, Brookfield Renewable Energy Company, in July. The listed shares of the newly formed company are structured to be economically equivalent to the units of the partnership. In addition, the limited partnership holds 75% of the voting rights of the company through certain special shares.

Finally, Brookfield Renewable is well positioned to benefit from a global push towards renewable energy sources and their declining production costs.

Attractive dividends

Brookfield Renewable aims to increase its dividends by 5% to 9% per year. This goal seems realistic given that the company has increased its dividends at an average annual rate of around 6.6% over the past decade. Brookfield Renewable’s yield declined significantly in 2020 due to the stock’s sharp rise. However, it still offers a return of over 3%.

BEP chart

BEP given by YCharts

Over the long term, the company aims to pay out approximately 70% of its operating funds as dividends. This allows it to retain sufficient funds to develop its activities.

Evaluation

Brookfield Renewable trades at a higher valuation relative to its peers as well as its own historical valuation. Its EV / EBITDA ratio is around 34 times better than its peers. It is also about 17 times higher than its own 5-year average ratio. However, Brookfield Renewable has always achieved a top rating because of its superior performance.

BEP EV chart in EBITDA

BEP EV to EBITDA given by YCharts

As the chart above shows, its five-year average multiple is well above that of its peers. Diversified operations, a history of dividend growth, growth targets and a favorable environment for renewable energies mean that the stock could very well continue to benefit from a higher valuation in the future as well. Coupled with its return of over 3%, it is an interesting stock to add to your portfolio this month.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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