Want to Buy High-Yield Brookfield Renewable Stock? The Ticker You Pick Matters. Here's Why.


Brookfield Renewable is a more complex investment than you may think, and how you buy it can make a big difference.

Brookfield Renewable (BEP 2.30%) (BEPC 1.24%) does exactly what you might suspect from its name: It invests in renewable power assets. From this perspective, it is simple to understand. But things get more complicated from there. Here’s what you need to know about this fairly complex entity before you buy it.

What is Brookfield Renewable?

Taking a very big picture view, Brookfield Renewable is a way for Brookfield Asset Management (BAM 1.91%) to raise capital. Brookfield Asset Management is a large Canadian asset manager with a long history of investing in infrastructure assets on a global scale. It runs Brookfield Renewable’s day-to-day operations. Brookfield Renewable often invests alongside Brookfield Asset Management, taking a percentage of Brookfield Asset Management’s private investments in clean energy projects.

A child looking at a solar panel.

Image source: Getty Images.

So, if Brookfield Asset Management buys a solar farm, it may allot some percentage of that investment (say, 25%) to Brookfield Renewable. Why do this? Because it means Brookfield Asset Management doesn’t have to spend as much of its own money. Brookfield Renewable, as a stand-alone entity, has the capital that it raised from selling shares to investors that it can put to work.

From an investors’ viewpoint, Brookfield Renewable is a way to invest alongside Brookfield Asset Management. Since Brookfield Asset Management only works with large investors, Brookfield Renewable is a way for the “little guy” to play with the big boys.

It’s kind of a win/win in a lot of ways. But things get more complicated here because there are two different ways to own Brookfield Renewable — a partnership share class and a regular corporation share class.

Brookfield Renewable meets the demand

Originally, Brookfield Renewable Partners was the only way to buy Brookfield Renewable. But partnerships come with some tax complications, such as the K-1 form that investors need to deal with on April 15 each year. However, unlike most master limited partnerships, Brookfield Renewable Partners does not generate unrelated business taxable income (UBTI).

That’s a pretty complex topic, but UBTI makes owning MLPs in a tax advantaged retirement account far more tricky. That, and the K-1 form, lead many investors to avoid any kind of publicly traded partnership.

Some large investors, like pension funds and insurance companies, also avoid partnerships, but that’s usually because of portfolio mandate constraints. As Brookfield Renewable’s business grew, Brookfield Asset Management wanted to attract more capital. A quick and easy way to do that was to simply create a second way to own the same company, this time in a traditional corporate structure.

That is why investors can now own Brookfield Renewable Corporation. It is the exact same entity, but without the complication of the partnership structure.

Here’s the interesting thing: Despite being essentially identical, Brookfield Renewable Partners yields 5.7% while Brookfield Renewable Corporation has a dividend yield of 5%. Why the difference? The dividends are the same — it is the demand for each investment that is different. More investors want to own Brookfield Renewable Corporation than Brookfield Renewable Partners.

That makes some sense given that large investors like pension funds can only buy the corporate version, but it opens up opportunities for savvy investors willing to deal with a little extra paperwork at tax time.

What should investors do about Brookfield Renewable?

The quick answer here is that most income investors will probably be better off with Brookfield Renewable Partners, which can even be comfortably owned in a tax advantaged retirement account. Yes, you’ll have to deal with a K-1 form, but it won’t be nearly as complex as the forms you would get from a master limited partnership.

However, if you still don’t want to deal with partnerships, Brookfield Renewable Corporation is a decent fallback. Just understand that you are paying a sizable premium for the convenience of avoiding a K-1 form.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Asset Management and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.



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