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Income From Hydroelectric Power

by Debra Fiakas CFA


Are you an investor hungry for current income?  Is there a
green line of global warming fear running through your investment
selections?  I have stock that fulfills both
requirements.  Brookfield

Renewable Energy Partners (BEP: 

NYSE) is a renewable power producer with assets in Canada, the U.S.
and Brazil.  Brookfield generates over 5,900 megawatts of power
each year from plants running on river water, wind or natural
gas.  Another 2,000 megawatts is apparently under development
in Canada and Brazil.

What Brookfield does best is hydroelectric production.  The
company claims over 170 hydropower stations across the U.S., Canada
and Brazil, diverting river water through turbines to generate very
clean energy.  Hydroelectric power generates less than 5% of
the greenhouse gas emissions from coal-fired power plants, which can
spew out as many as 900 tons to 1,000 tons of carbon dioxide per
gigawatt hours of electricity produced.  More details can be
found from the Global
Reporting Initiative provides information on the greenhouse
gas emissions from various power sources.

If Brookfield’s hydroelectric power is green enough for you, then
let’s move on the company’s generation of income for its
shareholders.  Since Brookfield shares began trading in October
2001, the stock price has climbed steadily to a level 230% higher
than its debut price.

Brookfield started paying a quarterly dividend in December
2011.  Management has pledged to distribute between 60% and 70%
of funds from operations as well as to grow distributions by 3% to
5% each year.  The current quarter dividend is $0.3625 per
share.  At the current price that represents a very attractive
forward dividend yield of 5.1%.  Does Brookfield have the cash
to fulfill its dividend pledge?

Brookfield has reported net losses in two of the last three
years.  Yet, investors looking only at net income will not get
the full answer to the dividend policy question.  Indeed, the
company consistently generates significant positive cash
flows.  In the last twelve months Brookfield converted $1.33
billion in revenue to $395.0 million in cash from operations. 
Brookfield’s sales-to-cash conversion ratio of 29.7% stands out
among power producers.  What is more Brookfield has $227
million in cash on its balance sheet.  That is a good nest egg,
but we do note the company has $7.2 billion in debt on the balance
sheet as well.

Despite the debt, Brookfield is an attractive holding for
income-seeking investors.  The icing on the cake is a beta
measure of risk at a tepid 0.40. If the stock as it trades on the
Toronto (BEP.UN:  TSX) or New York exchanges (BEP:  NYSE)
appears a overpriced, there is several series of preferred stock
that also trade on the Toronto exchange.

Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
industries.

Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.