The S&P 500 index is hovering near all-time highs which means it’s yielding a scant 1.3% or so. But you can still find attractive (i.e. inexpensive) dividend stocks to add to your portfolio — if you look hard enough.
Right now, the broader energy sector has two examples that still appear to be trading at a discount: Brookfield Renewable (NYSE: BEP) (NYSE: BEPC) and Enbridge (NYSE: ENB). Here’s why you’ll want to look at both of them.
Brookfield Renewable is investing in the future
Brookfield Renewable has two share classes you can buy: one that is structured as a partnership and another that is structured as a regular corporation. The corporate shares were created so that institutional investors who were barred from owning partnerships could invest in Brookfield Renewable. Those shares trade at a slight premium to the partnership. If you are willing to own the partnership you can collect a yield of around 5.2%. The corporate share class’s dividend yield is roughly 4.5%. They are, otherwise, virtually identical. And they are both down more than 40% from their 2021 high-water marks.
As the name implies, Brookfield Renewable invests in renewable energy assets. That has been and will likely remain a fast-growing segment of the energy sector as clean energy slowly displaces carbon-based sources of power. Brookfield’s globally diversified portfolio spans across solar, wind, storage, and hydroelectric. The company does not, however, simply buy and run clean energy assets. Brookfield Renewable is controlled by Brookfield Asset Management (NYSE: BAM), a Canadian asset manager with a long history of investing in infrastructure assets. So Brookfield Renewable’s business model is to buy assets when they are attractively priced, operate them and improve them, and then sell them if it can get a good price. The cash it raises from asset sales goes toward buying new assets. This is basically what you would expect an asset manager to do.
Renewable power has fallen out of favor on Wall Street to some degree, which is a big part of the reason why investment-grade Brookfield Renewable’s value has declined so much. But that’s good news for investors because they can collect a more attractive yield at this point. Meanwhile, the distribution on Brookfield Renewable’s partnership units, which is the entity that’s existed the longest, has been heading higher at a rate of around 6% a year over the past decade.
Enbridge is shifting with the world
While Brookfield Renewable is firmly planted in clean energy, Enbridge is firmly planted in the carbon economy. But it is dipping its toes into clean energy and increasingly focusing on natural gas, which is expected to aid in the transition to clean energy. Its energy assets include oil pipelines, natural gas pipelines, regulated natural gas utilities, and clean energy. To be fair, clean energy makes up less than 5% of earnings before interest, taxes, depreciation, and amortization (EBITDA), but it highlights the company’s long-term goal of changing its mix as energy demand shifts.
The big story here, however, is the dividend yield, which is quite high at 7.5%, thanks to the stock having fallen around 25% from its 2022 highs. The dividend, however, hasn’t skipped a beat and has now been increased annually for an impressive 29 years and counting. That’s backed by an investment-grade balance sheet as well. The yield will make up the lion’s share of Enbridge’s total return, but if you are looking to maximize the income your portfolio generates, that probably won’t matter to you.
Two income options that are well off their highs
It is hard to find discounted stocks when the stock market is in rally mode, but if you look hard enough, there are usually at least a couple of attractive options. And that is exactly what reliable dividend growers like clean energy-focused Brookfield Renewable and pipeline giant Enbridge are today. The biggest question you’ll probably have to ask yourself is which suits your portfolio’s needs better.
Should you invest $1,000 in Brookfield Renewable right now?
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Reuben Gregg Brewer has positions in Enbridge. The Motley Fool has positions in and recommends Brookfield Asset Management, Brookfield Renewable, and Enbridge. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
2 Dividend-Paying Energy Stocks to Buy at a Discount was originally published by The Motley Fool
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