Mr. Market, a construct of famed value investor Benjamin Graham, is a fickle individual. Sometimes he offers opportunities that look attractively priced, only to change his mind much faster than you might expect, sending the price right back up.
When shopping for potential investments, I occasionally get access to the attractive price, which is what happened with my investment in WEC energy(NYSE: WEC). But after the subsequent rally in stock prices in just a few months, I decided to sell the utility and use those funds to invest in a higher yield that is still out of favor.
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I bought WEC Energy in July 2024, when the dividend yield was above 4%. The yield, history of dividend growth, and opportunities presented by the utility’s continued shift to cleaner energy were more than enough to get me in the door.
And then, shortly after I bought WEC Energy, utility stocks rose. WEC Energy’s return is now around 3.4%.
WEC data by YCharts
That’s not high enough for me to add to my position. Add to that the stock increase of about 20% in just a few months, and I’m afraid WEC Energy has gone too far, too fast. I consider it at least fairly valued and no longer cheap. I actually expected a 20% equity advance to be spread over three years, not four months or so. I decided to lock in the profits and switch to another utility-related investment.
What I bought to replace WEC Energy was a unique, clean energy focused company with a 5.6% return. That is 4.5 times greater than the yield on the S&P500. It is twice as high as the average utility used Utilities Select Sector SPDR ETF(NYSEMKT:XLU) as a proxy for the sector. And it is 1.6 times as much as WEC Energy. That’s a valuable increase compared to WEC, and certainly attractive relative to the broader utility space and market.
But the real reason I bought Brookfield Renewable Partners(NYSE:BEP) is the opportunistic nature of his investment approach. For starters, I believe there is a long road ahead for growth as the world continues to shift toward cleaner energy alternatives. Brookfield Renewable has its fingers in virtually every pie, with exposure to solar, wind, hydro, storage and nuclear. And the portfolio is globally diversified, so it can deploy money virtually wherever opportunities arise.
BEP data by YCharts
That forms the basis for the partnership’s approach to buy low and sell high, driven by the relationship with Brookfield Asset Management(NYSE: BAM). Essentially, buying Brookfield Renewable is a way for me, a retail investor, to partner with the institutional money that Brookfield Asset Management manages.
With a strong financial position (Brookfield Renewable has an investment-grade rated balance sheet) and its partnership with Brookfield Asset Management, Brookfield Renewable has the ability to step into difficult situations. The company then restores the assets it purchases, both financially and operationally. And if it gets a good deal, it sells the asset and repeats the process with a new investment.
Right now, Brookfield Renewable is able to do both because well-capitalized, high-performing clean energy assets are selling at attractive prices, while financially distressed clean energy assets are trading cheaply. Wall Street, meanwhile, is treating the clean energy sector as if all assets are in trouble (which I think leads to an attractive price for Brookfield Renewable), which is simply not true.
And what’s more, there’s a huge runway for growth ahead as the world continues its shift to clean energy. Brookfield Renewable, which has regularly expanded its distribution, allows me to invest directly in that transition.
I own Enbridge And Total Energies because they bridge the gap between fossil energy and clean energy. Brookfield Renewable is my first direct action in clean energy, coming after Wall Street’s fascination with the sector has waned.
I guess I try to be opportunistic too. In fact, there is added pessimism right now because of fears that government subsidies in the United States will disappear. In that respect, Brookfield Renewable is very clear that subsidies are not that important for the future.
I’m in and I plan to keep it going for another decade or more. You might also want to reconsider this out-of-favor, high-yield, utility-like business.
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Reuben Gregg Brewer holds positions at Brookfield Renewable Partners, Enbridge and TotalEnergies. The Motley Fool holds positions in and recommends Brookfield Asset Management and Enbridge. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
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