Last fall, Brookfield Renewable Partners (BEP -2.44%) outlined its five-year growth strategy. It's a bold vision, which would see the company deliver high-powered earnings growth along with healthy annual increases in its high-yielding distribution.

While a lot has changed in the world -- as well as with Brookfield -- since it unveiled its plan, it should still be able to deliver on its main two aims of growing cash flow and the dividend. Here's a look at where Brookfield expects to be at the end of 2024.

A man in a green field with wind turbines in the background.

Image source: Getty Images.

The five-year plan

Brookfield Renewable has grown its funds from operations (FFO) on a per unit basis by a more than 10% annual rate over the last several years. It expects to maintain that pace over the next five, powered by four growth drivers:

  • Inflation escalators in its existing contracts can grow FFO by 1% to 2% per year.
  • Margin enhancement activities, such as cost-cutting measures and higher power prices, could boost its bottom line by 2% to 4% annually.
  • Development and wind repowering projects should add another 3% to 5% to its yearly FFO.
  • Acquisitions can increase its annual FFO by an additional 3% to 5%.

Add it up, and Brookfield Renewable sees its FFO per unit rising by 9% to 16% per year through 2024. That should support its plan to grow its high-yielding distribution at a 5% to 9% annual rate, even if it doesn't make any more deals.

While the first two levers don't require any investment, Brookfield estimates that it will need to spend about $4 billion during that timeframe on development projects and acquisitions to deliver on its FFO growth target. It has a well-balanced plan to finance that growth, including:

  • $200 million of retained cash after paying its distribution.
  • $1 billion from cash-out refinancing on existing assets.
  • $800 million of new corporate debt.
  • $1.5 billion from the sale of lower returning assets.

Thanks to its strong, investment-grade rated balance sheet, Brookfield doesn't anticipate running into issues with raising the debt needed to finance its growth. Likewise, it should be able to sell assets given the demand for high-quality, cash-flowing renewable energy assets by private investors. While a market downturn like the current one due to the COVID-19 outbreak might have some near-term impact on asset values, Brookfield is starting with $3.1 billion of liquidity thanks to recent sales, which buys it time to wait for a recovery. If anything, it might be able to find better values on acquisitions in the near-term due to the current market dislocation.

A recent addition to the plan

One funding mechanism that Brookfield isn't counting on as part of its strategy is issuing new common equity. However, that doesn't mean it wouldn't use this financing tool if the right transaction came along. 

That's exactly what happened this month as it sealed a deal to acquire the rest of TerraForm Power's (TERP) shares that it didn't already own. This deal -- which isn't part of its five-year plan -- will create one of the largest renewable energy companies in the world. Further, the combined company will have the strongest investment-grade balance sheet in the sector. The combination will also provide an immediate boost to Brookfield's FFO and strengthen its contract profile. As such, it will enhance the company's ability to deliver on its five-year plan since it should make it easier for the company to finance its growth-focused initiatives.

Expect a much higher dividend in five years

Brookfield anticipates that it will generate double-digit annual earnings growth over the next five years. While there's always a risk that a deep, long-lasting economic recession could impact its plans, the company entered 2020 with a rock-solid financial profile, which includes long-term contracted cash flows and a strong balance sheet. Meanwhile, it has enhanced that already top-notch financial profile by agreeing to acquire TerraForm Power. Brookfield now appears poised to deliver on its growth plan, which would see it paying a much higher dividend five years down the road.