Monday’s TSX breakouts: This defensive security has a stable distribution, currently yielding 5.6%

On Friday, North American equity markets closed lower and these losses look like they will extend into Monday.

This week may be quite volatile. News to watch this week are as follows. Canadian July gross domestic product (GDP) figures are released on Friday. In the U.S., August new home sales are reported on Monday and the presidential debate takes place tonight, Purchasing Managers' Index data is released on Tuesday along with Durable Goods Orders, Fed Chair Janet Yellen will be speaking on Wednesday and we also get weekly oil inventory data announced that day. Members of the Organization of the Petroleum Exporting Countries are gathered in Algeria for a three day meeting beginning today, which may also move the price of oil. Finally, Friday marks the end of the third-quarter and institutional portfolio managers may be realigning their portfolios ahead of quarter end.

To recap, on Friday, in the U.S., the Dow Jones Industrial Average declined 0.71 per cent, the S&P 500 Index fell 0.57 per cent, and the Nasdaq composite index dropped 0.63 per cent.

In Canada, the S&P/TSX composite index lost 99 points, or 0.67 per cent to close at 14,698. There were 153 securities in the TSX Index that advanced, 190 securities declined in value, and three stocks closed the day unchanged.

The S&P/TSX composite index is up 0.68 per cent month-to-date, up 4.50 per cent quarter-to-date, and has a gain of 12.97 per cent year-to-date.

On today's TSX Breakouts report, there are 33 securities on the positive breakouts list (stocks with positive price momentum, and 10 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock appearing on the positive breakouts list. This defensive security offers investors an attractive 5.6 per cent yield, and it may retain its value amidst potential market volatility relative to other investments. The security highlighted today Brookfield Renewable Partners L.P. (BEP.UN-T)

A brief outline is provided below that may serve as a springboard for further fundamental research.

The limited partnership

Brookfield Renewable operates one of the world's largest public pure-play renewable power platforms with a portfolio of 260 power generating facilities such as hydroelectric and wind power plants across three continents, North America, Latin America, and Europe, totalling 10,700 megawatts of capacity.

Before the market opened on Aug. 4, Brookfield Renewable reported second quarter financial results below expectations. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $377-million (U.S.), falling short of the consensus estimate of $493-million. Funds from operations per unit came in at 37 cents. The unit price closed the session relatively unchanged, falling just 26 cents, less than 1 per cent.

Management's objective is to provide unitholders with a long-term annual total returns ranging between 12 per cent and 15 per cent.

Brookfield Renewable is a subsidiary of Brookfield Asset Management Inc. As of Feb. 26, Brookfield Asset Management Inc. held an interest of approximately 62 per cent. It is dual-listed, trading on the New York Stock Exchange under the ticker BEP, and on the Toronto Stock Exchange under the ticker BEP.un.

Distribution policy

Brookfield Renewable pays its unitholders a quarterly distribution of 44.5 cents (U.S.) per unit, or $1.78 on a yearly basis. This equates to an annualized dividend yield of 5.6 per cent. The distribution has been maintained at this level since early 2015.

Management indicated in the second quarter earnings news release that they target annual distribution increases of between 5 per cent and 9 per cent, on average.

The funds from operations payout ratio is targeted at 70 per cent.

Valuation

Many analysts value the stock on an enterprise value-to-EBITDA basis. According to Bloomberg, units of Brookfield Renewable are currently trading at an EV/EBITDA multiple of 13.5 times the 2017 consensus estimate, which is approaching to its peak valuation over the past three years of 14.5 times. The historical three-year average EV/EBITDA multiple is 12.7 times with the units typically trading between12 times and 14 times over the past three years.

Analysts' recommendations

According to Bloomberg, there are eight analysts with 'buy' recommendations, five analysts with a 'hold' recommendations, and two analysts with 'sell' recommendations. The average one-year target price is $43.08 (Cdn.), which implies approximately 5 per cent upside potential over the next 12 months.

The consensus EBITDA estimate is $1.64-billion (U.S.) in 2016, and is expected rise nearly 11 per cent to $1.82-billion in 2017.

In recent months, analysts have been revising their forecasts higher. At the start of the year, the consensus EBITDA estimate was $1.4-billion for 2016 and $1.47-billion for 2017.

Insider transactions

Looking at the past six months, there have been no reports of insider transaction activities.

Chart watch

Year-to-date, the unit price has appreciated 13 per cent, close to the middle of the pack relative to its utility peers in the S&P/TSX composite index. However, over the past month, the unit price has strengthened while the prices for many of its utility peers have been under pressure.

There is initial overhead resistance around $42, which is close to its record high closing price of $41.78 reached in April 2015.

There is initial downside support at $40, near its 50-day moving average at $40.08, and failing that between $37.50 and $38, which is near its 200-day moving average at $37.66.

The relative strength index is at 62, suggesting the unit price is in neutral territory, neither overbought nor oversold. Generally, a reading at or above 70 indicates an overbought condition, and a reading at or below 30 indicates an oversold condition.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indices that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.