The Motley Fool’s Take
Brookfield Renewable Corp. has been a phenomenal wealth creator over the years. The renewable energy giant has delivered approximately 17% annual total returns since its inception in 1999, growing a $10,000 investment into more than $370,000.
Brookfield’s clean energy infrastructure business generates stable cash flow, mainly supported by long-term power purchase agreements that sell its electricity to utilities and large corporate buyers. In the long term, its goal is to pay out 70% of that cash flow to investors via its dividend.
The current bear market has given investors an opportunity to buy stocks at a great price, as they were recently about 30% below their 52-week high. This drop in its share price also pushed Brookfield’s dividend yield up over 4%.
In addition to providing an attractive income stream, Brookfield also expects to continue to grow rapidly. It projects that its funds from operations will grow about 10% or more annually through at least 2027, thanks to inflation-related rate increases, higher electricity prices, development projects and possible mergers and acquisitions. Such growth should easily support Brookfield’s plan to grow its dividend at a 5% to 9% annual rate. (The Motley Fool owns shares and has recommended Brookfield Renewable.)
Ask the fool
From VC in Wilmington, Del.: What does it mean when a company has a “moat”?
The fool responds: Moats were used to keep intruders out of castles, and a company with a moat has one or more competitive advantages that protect its market position and defend against competitors or competitors.
There are many types of competitive advantages – such as a strong brand, valuable patents, economies of scale, high barriers to entry and high switching costs for customers. Boeing, for example, benefits from high barriers to entry: It would be extremely expensive for any company to try to build airplanes. Many customers cannot change their cable company because it would be a big hassle. Apple’s powerful brand means it can charge high prices for its offerings — and many customers end up with more Apple products, making it hard to switch away.
From PH to Erie, Pa.: How can I find out what stocks my fund holds?
The fool responds: In general, you can’t know what a fund is holding from day to day, but most funds publish lists of their holdings at least monthly or quarterly. You should be able to find such reports on fund company websites, and also on sites — such as Morningstar.com — that provide information on a wide range of funds.
Do not assume that each list is 100% up-to-date, however, as a fund may have sold some or all of its position in a stock since the report was issued – and may have loaded onto some other securities. Some fund managers also practice “window dressing” – selling some stocks that have taken losses and buying others that have gained before the end of a reporting period to give investors a better look.
The school of fools
There are more than 6,000 different stocks listed on the New York Stock Exchange and the Nasdaq stock market. It can be difficult to figure out which of them could be fantastic investments, so try online stock screeners for a group of candidates to narrow your portfolio down to a manageable size.
When you use a stock screener, you set some criteria that describe the type of stocks you’re looking for, and the screener provides stocks that match them. For example, you want stocks with market capitalizations of at least $5 billion, earnings growth rates of at least 10%, price-to-earnings ratios of 20 or less and dividend yields of 2% or more.
If the screener returns far too many results, you can tighten your requirements a bit or add another one. If there are too few results, drop your requirements, or eliminate one.
Screening can be useful, but don’t take it blindly. There may be amazing stocks out there with most, but not all, of your desired characteristics; if so, the screener will never bring them to your attention. Also, a screener is only as good as its data, so stick with reputable screeners with reliable data. If you are not sure, just research each promising company more deeply.
There are many screeners out there, some free and some not. Some offer a stripped down free version and charge for more features.
For starters, check out the screeners for stocks and/or mutual funds at Finance.Yahoo.com, Zacks.com, Finviz.com, StockRover.com and Morningstar.com. Your brokerage may also provide a screener for you to use. Many screening services not only let you play with their screener, hunting for gems, but they also offer preset filters, such as lists of promising dividend payers or fast-growing small stocks.
However, do not base investment decisions solely on screening results, as they always leave out some factors that may be important – such as the quality of a company’s management and your trust in it, the value of its brand(s) and its competitive advantages.
My stupidest investment
From ANR, online: My dumbest investment? I was a victim of a pump-and-dump scheme. I fell for it because I never thought that a stock market could fall so low. On the upside, it’s the only stock I ever own 100,000 shares of. They are worth a total of $90 today.
The fool responds: Many investors have put much of their hard-earned money into penny stocks, only to unknowingly end up as participants in pump-and-dump schemes. Penny stocks are those that trade for less than about $5 per share. They are generally tied to small, unproven companies whose shares can be easily manipulated. In a common scheme, people hype them in online communities and newsletters to boost the share price due to rising demand, then sell their shares, sending the price down.
Consider a representative penny stock that recently traded at 7 cents per share. It would only cost you about $7,000 to buy a whopping 100,000 shares. That might seem like a bargain – after all, buying 100,000 shares of, say, Microsoft would cost you more than $20 million! But Microsoft is very likely to be worth more in the future, while a 7-cent share associated with a company with barely any revenue and years of losses could easily become a $0.02 share, or even a tenth of a cent, especially when it is pumped and dumped.
Who am I?
I trace my roots back to 1891, when I started distributing chemicals in New York City. I published a medical treatment manual in 1899 which proved very popular. I moved into pharmacological research in 1933 and entered the animal health arena in 1948. I was also a big player in vaccination, helping to prevent pneumonia and hepatitis B, among other diseases. Today, based in Rahway, NJ, I am a pharmaceutical giant. My market value recently increased to $250 billion, and my annual revenue is $50 billion. My drugs include Singulair, Januvia and Keytruda. I merged with Schering-Plough in 2009. Who am I?
Don’t remember last week’s question? Find it here.
Last week’s trivia answer: VF Corp.