Brookfield Renewable Partners (BEP +2.19%) had enough embedded growth within its existing portfolio to expand its cash flow per share at a 6% to 11% annual rate through 2022. That would give the renewable-energy company enough power to increase its already 5.5%-yielding distribution at a 5% to 9% yearly pace over the timeframe.
However, that hasn't stopped the company from adding even more power to its growth engine. That was evident in Brookfield's second-quarter conference call, where CEO Sachin Shah ran through several strategic moves the company made in recent months. As a result, Brookfield Renewable could grow its payout at or even above the top end of its long-term target range in the coming years.
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We've been very active
Shah led off the call by saying, "We advanced our strategic priorities during the quarter, deploying capital in a number of transactions while maintaining a robust balance sheet and access to capital." He then ran through the list of transactions the company either completed or announced during the quarter:
- It closed on the acquisition of 210 MW of operating wind capacity in India.
- The company completed the first phase of a $750 million Canadian (US$563 million) investment into Canadian utility TransAlta's hydroelectric portfolio in Alberta.
- It announced a joint venture with private equity giant KKR (KKR +0.09%) to invest in solar project developer X-Eilo.
- It unveiled a transaction through its majority-owned TerraForm Power (TERP +0.00%) to buy a solar portfolio in the U.S.
Meanwhile, the company raised about $275 million of liquidity by selling some of its South African assets as well as refinancing existing debt. As a result, it ended the quarter with $2.5 billion of available capital. That number will get a further boost after the company took steps to sell the rest of its South African assets as well as non-core portfolios in Thailand and Malaysia. Those deals should bring in an incremental $55 million of cash.
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It's all about the upside
Brookfield's CEO spent some time on the call doing a deeper dive into its two most recent transactions. He started off discussing the X-Eilo joint venture with KKR and said it would "own one of the largest solar developers globally, with an experienced management team, best-in-class contracting capabilities, and a proven track record of developing assets at premium returns." He noted that the current portfolio consists of about 275 MW of operating solar assets, 1,400 MW of projects under construction, and a broader 4,800 MW development pipeline. This pipeline "should provide significant growth optionality over the long term," he said.
Shah noted: "Over the next five years, the plan for the business is to develop 500 to 800 MW of new solar capacity annually in the existing pipeline and to look for additional development opportunities in the global solar market. This growth will complement our existing pipeline of development projects that today include over 600 MW of advanced-stage wind, hydro and solar, and approximately 130 MW of assets under construction."
That's a needle-moving addition, since Brookfield Renewable's base plan estimated that it would develop about 1,000 MW of capacity over the next five years. With it significantly bolstering its development pipeline, the company should grow cash flow at an accelerated rate.
Meanwhile, the other notable recent transaction was at TerraForm, which is spending $720 million to buy a 320 MW portfolio of solar and energy storage assets secured by long-term contracts. Shah commented on the deal:
This investment will nearly double our DG [distributed generation] footprint, making us one of the largest such portfolios in the U.S., and providing significant opportunities to drive incremental cash flow growth through operational and commercial synergies. The investment is immediately accretive and requires no incremental capital as we expect to fund the transaction in TerraForm through project-level financings and asset sales. This transaction extends TerraForm's contract profile, reduces its portfolio resource variability, and improves its organic cash flow growth.
As such, it increases the probability that TerraForm Power will grow its dividend at or above the high end of its 5% to 8% annual target range. Given Brookfield's sizable stake in that entity, it will benefit from the increased cash flows TerraForm distributes to its investors. That would give Brookfield more money to potentially distribute to its investors.
Increasing the potential for high-powered dividend growth
Brookfield Renewable already had enough embedded organic growth within its existing portfolio to increase its high-yielding distribution at a 5% to 9% annual pace through at least 2022. However, after locking up several needle-moving deals over the past few months, the company has increased the probability that it can grow its payout at the high-end of that range. That makes it an even more appealing option for income-seeking investors to buy for the long term.
