On the one hand, Brookfield Renewable Partners (NYSE: BEP) and Enterprise Products Partners (NYSE: EPD) share several similarities. Both are high-yielding energy partnerships that have consistently rewarded their investors over the years. In the past decade, for example, both routinely increased their high-yielding distributions to investors, which helped propel them to produce a more-than-310% total return, crushing the S&P 500's roughly 210% total return over that time frame.
However, there's one crucial difference between these two companies. Brookfield Renewable, as its name implies, focuses on the renewable side of the energy sector, while Enterprise Products operates in the oil and gas midstream industry. That one subtle difference could be what breaks the tie for investors who are struggling to choose between these two well-run energy companies.
Image source: Getty Images.
A closer look at the numbers
Brookfield Renewable and Enterprise Products Partners both boast solid financial profiles:
Debt to Adjusted EBITDA
Projected 2019 Dividend Payout Ratio
% of Cash Flow Fee Based or Regulated
Brookfield Renewable Partners
70% of cash flow
Enterprise Products Partners
60% of cash flow
Data source: Enterprise Products Partners and Brookfield Renewable Partners.
As the above table shows, the two energy companies have very similar financial metrics. While Brookfield Renewable offers a higher current yield, that's due in part to the fact that it pays out slightly more of its cash flow. Meanwhile, both have strong investment-grade credit ratings backed by low leverage metrics. Further, each company generates stable cash flow, since fee-based contracts supply more than 90% of their earnings. Because of that, each company has the financial strength to support lucrative distributions and the funds to continue expanding its portfolio of cash-generating energy assets.
A look at what's ahead
Enterprise Products Partners has steadily grown its midstream footprint over the last two decades. In 2018, it finished more than $2 billion of expansion projects. Meanwhile, it expects to complete another $4.5 billion in 2019 and at least $1.4 billion more in 2020. Those expansions position the company to increase cash flow per unit at a 4% to 9% annual rate going forward. Add that growth rate to the company's more-than-6%-yielding distribution, and it's positioned to generate 10% to 15% total annual returns in the coming years, and that's without assuming any improvement in its valuation after last year's sell-off.
Brookfield Renewable Partners, meanwhile, expects to invest $700 million per year in expanding its portfolio through both organic expansions and acquisitions. The company currently anticipates that it can grow cash flow per unit at a 6% to 11% annual rate before factoring in the impact of future acquisitions. Driving that growth are expansion projects it has underway, inflation escalators in its long-term contracts, and actions it's undertaking to boost the profitability of its legacy assets.
On top of that, the company has a knack for making value-based acquisitions that move the needle. Over the past year and a half, for example, it made two investments in wind- and solar-power company TerraForm Power (NASDAQ: TERP). The first transaction helped stabilize the struggling TerraForm, while the second gave it the cash to make a needle-moving acquisition of its own. In Brookfield Renewable's view, its growth strategy should give it the power to generate total annual returns in the 12% to 15% range.
Image source: Getty Images.
Looking farther ahead, both companies should be able to continue expanding their earnings for years to come due to the enormous growth opportunities in their respective segments of the energy sector. In midstream, for example, companies like Enterprise Products Partners need to invest $800 billion in building new pipelines, storage terminals, and other infrastructure assets to support the sector's anticipated growth through 2035. Because of that, the company should be able to increase its cash flow at a healthy pace for at least the next couple of decades.
The renewable market, on the other hand, has the potential to offer an even larger opportunity. Brookfield Renewable estimates that companies need to invest a jaw-dropping $10 trillion in the decades ahead to replace the world's current carbon-based energy systems with renewables. It's a multidecade opportunity for Brookfield Renewable, which makes it an ideal stock to buy and hold for the ultra-long term.
Verdict: Brookfield Renewable Partners is the better buy
This battle is close since both companies offer similar yields, strong financial profiles, and solid long-term growth prospects. However, for investors who can only choose one, I'd recommend Brookfield Renewable. Not only does it offer a slightly higher yield now, but it's currently growing its payout at a higher rate. Further, the company's focus on renewables makes it a better long-term investment in a world that's becoming increasingly worried about climate change. Those factors could give it the power to generate higher total returns in the decades ahead.
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Matthew DiLallo owns shares of Brookfield Renewable Energy Partners, Enterprise Products Partners, and TerraForm Power. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.