The 1 stock I would buy right now – The Motley Fool

As long as there is electricity, there is renewable energy. Hydroelectric dams were the first major power generation assets to light American cities in the late 19th century. For more than 100 years, hydropower has been the main source of renewable energy in the United States.

This century-old reliability helped Brookfield Renewable Partners LP (NYSE: BEP) Become one of the world's leading renewable energy companies, although the company's dependence on hydropower has done more harm than good this year. The stock has fallen 20% since the beginning of 2018, in part because of the poor year-to-year result from the hydroelectric power sector.

However, the numbers are not close to telling the whole story. Investors digging a little further will be more lenient – and will likely see the slide in the renewable energy stock as a great buying opportunity.

Low dam flow, with an asterisk

A glance at the operational performance of Brookfield Renewable Energy Partners over the first nine months of 2018 could give rise to a sense of disappointment. The business saw funds from operations – a measure of profitability – of its North American hydroelectric assets down 16.5% from the same period last year. While the portfolio covers three continents and four types of renewable energy assets, US and Canadian hydropower accounted for 58% of total revenues and 88% of total cash flow from operations. in the first nine months of 2017. A double-digit decline has had a significant impact on overall business.

But it's not as bad as it looks. Indeed, 2017 was a record year for North American hydroelectricity thanks to exceptionally high runoff volumes. According to the US Energy Information Administration, the United States produced an average of 264 terawatt hours of annual electricity generation from hydroelectric dams in the five years ending in 2016. This figure jumped 14% to 300 terawatt hours. in 2017.

As might be expected, hydro generation is returning to the average in 2018 (although it still exceeds the five year average from 2012 to 2016), which is why comparisons from one year to the next are expected. Other until 2017 seem so weak for Brookfield. Renewable Partners. The company can not control runoff, but it can control investments in promising new growth opportunities to diversify its assets – and remove it from the park.

Renewable energy 2.0

Hydropower is an important source of clean electricity, but industrialized countries are simply not building new dams. That's why, in 2019 – and perhaps even this year, wind energy will become the primary source of renewable energy in the United States. Wind energy is on the rise in Europe and South America, and Brookfield Energy Partners has been busy preparing for it.

During the first nine months of 2018, the company's wind portfolio increased power generation and cash flow from operations generated 78% and 39%, respectively, over the same period in the year. Previous year. The company's solar portfolio is also enjoying an excellent first year with 569 gigawatt hours (GWh) to date. Together, the emergence of new renewable energy helps to paint a clear picture of the future at Brookfield Renewable Partners for investors.

Data Source: Brookfield Renewable Partners. YOY = from one year to the next.

The table above clearly shows that wind and solar assets play an increasingly important role in the composition of the company's production and its results. The renewable energy duo provided 18.6% of the portfolio's electricity production in the first nine months of 2018, up from only 9.3% for the same period of the year. previous (also affected by a good year for hydroelectricity). When new energy storage assets are added to the mix, the trio added $ 101 million of cash flow from operations over this period, contributing to more than offsetting declines in energy costs. 39, hydraulic energy.

The change is just beginning. Brookfield Renewable Partners expects to generate additional net proceeds of $ 350 million by the end of the year through the sale of shares in certain Canadian hydroelectric assets. The net proceeds received to date will be $ 500 million and will be reinvested in new wind, solar and storage assets capable of generating higher rates of return. All of this is part of a long-term plan to invest up to $ 800 million a year in portfolio expansion.

If the company continues to keep its promise, it should be able to hold two more. Brookfield Renewable Partners aims to generate a total return (equity gains plus distributions) of at least 12% per annum while increasing its distribution by at least 5% per annum. Growing contributions from its relatively limited base of wind and solar power this year show that this might not be such a scope.

An excellent buying opportunity for long-term investors

Brookfield Renewable Partners' share fell 20% in 2018, in part because of the weak performance of one year on the other's hydroelectric assets, one of the largest in the world. wallet. However, the fact that 2017 was an exceptionally wet year distorts the comparison. More importantly, the company's strong performance in rapidly growing wind and solar assets goes beyond simply recovering potential, while hinting at the future. The management's long-term plans for growth and a 6.9% distribution yield for investors suggest that this excellent deal is a buy at current prices.

Maxx Chatsko does not own any of the shares mentioned. The Motley Fool has no position in the mentioned actions. Motley Fool has a disclosure policy.