Brookfield Renewable Partners (BEP 1.19%) operates one of the world's largest renewable energy portfolios. While it's diversified across several asset classes, it's a bit light on solar. That power source accounted for only about 4% of its capacity during the first half of this year. However, that will change in the coming years, given the company's recent transactions focused on that sector.
Those investments in solar help position Brookfield Renewable to grow its cash flow at more than a 10% annual rate over the next five years. That'll give the company plenty of power to continue increasing its 4.8%-yielding dividend, which is something income-seeking investors won't want to miss.
An emerging solar growth story
Brookfield Renewable is a relatively new entrant to the solar market. It initially acquired a solar platform in late 2017 when it bought control of TerraForm Power (TERP) and its sibling TerraForm Global. It has since been part of four notable solar-related transactions, which have that power source on track to account for about 18% of its 18,230 megawatts (MW) of renewable energy capacity:
- It assisted TerraForm Power with the acquisition of Saeta Yield. The Spain-based renewable energy company added 778 MW of wind capacity and 250 MW of solar to TerraForm's portfolio.
- Its parent company, Brookfield Asset Management, established a 50-50 joint venture (JV) to build rooftop solar energy projects in China.
- It formed a 50-50 JV with private equity giant KKR to own Spain-based solar project developer X-Elio. That company had 273 MW of solar assets in operation along with a large-scale development pipeline.
- TerraForm Power agreed to buy a portfolio of 320 MW of solar power and storage assets in the U.S.
These deals have not only bolstered Brookfield Renewable's portfolio of operating solar assets but also its growth prospects. The JV with its parent in China, for example, intends on installing 300 MW of rooftop solar projects in the next few years, as part of a broader 1,000 MW development pipeline. Meanwhile, X-Elio had 1,413 MW of solar projects in development along with 4,800 MW in its pipeline.
Plugging in more solar to help power its growth engine
Before the X-Elio transaction, Brookfield Renewable had about 130 MW of renewable assets under construction, including 30 MW of solar as part of its China JV. In addition, it had 629 MW in its development pipeline, which included a mix of solar, wind, and hydro projects that it expected to build over the next five years. However, it now plans to develop an additional 500 to 800 MWs of new solar capacity annually over the next five years as part of its X-Elio joint venture. That highly visible development pipeline leads Brookfield Renewable to believe that expansion projects alone can grow its cash flow per share by 3% to 5% annually through 2024. That's in addition to the 1% to 2% of yearly growth it will get as inflation escalators on its existing contracts kick in and 2%-4% of incremental earnings from the improving profitability of its legacy facilities. Add it up, and Brookfield has enough organic growth initiatives to boost cash flow by 6% to 11% per year over that timeframe.
On top of that, the company plans to make additional acquisitions, with it aiming to invest a total of $4 billion into M&A and its development pipeline by 2024. While it won't pour all that money into solar, it will continue buying assets in that sector. One area of focus will be to build out a leading distributed generation (DG) platform, which is power produced near end-users (i.e., rooftop and ground-mounted solar systems). That's because it can typically acquire these assets for a good value, which enables it to earn a premium return compared to other opportunities. In the company's view, acquisitions should add another 3% to 5% annually to its bottom line. Add that to the company's anticipated organic growth, and Brookfield should have enough power to expand earnings by 9% to 16% annually through 2024. That will easily support the company's plan to increase its high-yielding dividend by 5% to 9% per year.
Solar-powered dividend growth
While Brookfield Renewable operates a diversified portfolio of renewable energy assets, solar will power a significant portion of the company's growth over the next five years. That makes it an excellent option for investors looking for a solar-powered income stream.