Brookfield Renewable Partners (NYSE:BEP) has generated strong returns for its investors over the years. CEO Sachin Shah pointed this out on the company's fourth-quarter conference call, stating that "since our inception in 1999, we have delivered 15% per unit compounded annual total returns to unitholders," which is well ahead of the S&P 500's 5% annualized total return over that time frame. Powering the company's market-beating returns has been its ability to consistently grow earnings and its dividend, with that latter factor known to be key in fueling outperformance.
While past performance is no guarantee of future success, Brookfield Renewable Partners not only has the right approach, but it's pursuing a massive market opportunity, which increases the odds that it can continue growing both earnings and its dividend at a healthy rate for years to come. Because of that, Brookfield Renewable Partners does indeed look like a strong candidate to be a millionaire-maker stock.
The math to $1 million
It's mathematically possible for a small investment to grow into a $1 million payday given enough time and rate of return. For example, $1,000 invested in the S&P 500 should grow into $1 million in about 75 years, assuming the market maintains its average annualized return of slightly less than 10%. Investors, meanwhile, can quicken that time frame by either investing more money up front or choosing a higher-returning opportunity. Using Brookfield Renewable Partners as our example, if the company keeps generating a 15% total annualized return in the decades ahead, an investor could become a millionaire in as few as 33 years if they invested $10,000 or about 49 years if they started with a $1,000 investment.
The question, however, is whether Brookfield Renewable Partners can continue generating that level of return in the coming decades. Here are two reasons why there's a strong probability that it could do just that.
Targeting long-term outperformance
Brookfield Renewable Partners' stated objective is to deliver long-term total returns to its investors of 12% to 15% annually. The high end of that range, of course, lines up with our math to $1 million. However, if the company only grew earnings at the low end, it could still turn a small up-front investment into $1 million, though it would just take longer (about eight more years assuming a $10,000 initial investment and 12 years at $1,000).
Three factors power the company's forecast. First, Brookfield Renewable currently pays an attractive dividend that yields 6.7% and forms the base return. Second, the company expects a trio of factors to enable it to organically grow earnings per share by 6% to 11% per year. These growth drivers include inflation escalators on existing contracts, the ability to expand margins by cutting costs and signing higher-priced power sales agreements in the future, and investments in developing new renewable projects that grow cash flow.
Finally, the company anticipates that its increasing cash flow will support 5% to 9% annual dividend growth. That combination of yield and growth should generate 12% to 15% annual returns, since the roughly 7% yielding distribution, when combined with 6% earnings growth, should produce a total return of around 13%.
Taking aim at a multitrillion-dollar market
That 6% to 11% annual earnings growth rate, however, could be conservative. That's because the company also expects to continue making acquisitions that should provide a further boost to its bottom line. It did that last year, investing $420 million to increase its stake in wind- and solar-power company TerraForm Power. That transaction helped Brookfield Renewable Partners to grow earnings 14% compared to 2017's level.
Brookfield Renewable Partners should have many more opportunities to make needle-moving acquisitions in the coming decades. That's because the company estimates that the world needs to invest a jaw-dropping $10 trillion into building new renewable-energy assets in the decades ahead to help wean the global economy off fossil fuels. In the company's view, it should easily be able to invest $700 million per year to acquire high-quality renewable-power assets from developers, which would then give them the funds to build additional projects.
The company intends on funding that investment with retained cash after paying its distribution, select asset sales, and the issuance of preferred equity and corporate debt. Meanwhile, the company could issue more common equity if the right opportunity came along, but its growth plan doesn't rely on stock sales to fund expansion, which should help it generate a higher growth rate in cash flow per unit.
Get rich slowly with this renewable-energy stock
While it will take some time, investors could see a small initial investment in Brookfield Renewable grow into a $1 million windfall. That's because the company's objective is to generate market-beating returns, which it could be able to do for decades to come given the staggering investment potential of the renewable-energy sector. That's why I think Brookfield Renewable Partners is one stock that those who have visions of becoming millionaires should strongly consider owning.
Check out the latest earnings call transcripts for companies we cover.