Brookfield Renewable Partners (NYSE:BEP) has been a compounding machine since its formation about two decades ago. From inception through the end of 2019, the renewable energy producer generated an annualized total return of 18%, which pulverized the S&P 500's 6% annualized total return during that period. Some of its early investors are well on their way to becoming millionaires.

Here's a look at whether the company could do the same for those who invest today.

Stacks of money with an arrow pointing upward.

Image source: Getty Images.

The math to $1 million

Any small sum can turn into a million-dollar payday given enough time and rate of return. For example, $1,000 invested in an S&P 500 index fund can grow into a $1 million nest egg in about 75 years, assuming the market delivers its historical 10% annualized total return. A bigger initial investment or a higher rate of return would result in $1 million sooner. For example, $10,000 invested into a stock generating an 18% total annualized return would only need 26 years to grow into $1 million. This math suggests that some early Brookfield investors might already have a $1 million windfall.

Brookfield Renewable's million-dollar math

While Brookfield Renewable's historical annualized total return has averaged 18%, it has more modest expectations for the future. The company's long-term target is to produce total returns of 12% to 15% per year. Powering that forecast is the company's view that it can organically grow its cash flow at a 6% to 11% annual pace, giving it the power to increase its 4%-yielding distribution by 5% to 9% per year.

Three factors drive its organic growth outlook:

  • Inflation escalators on its existing contract should support 1% to 2% annual earnings growth.
  • Higher power prices and cost-saving initiatives should enhance margins, driving a 2% to 4% yearly improvement in its bottom line.
  • Development and repowering projects should grow earnings by 3% to 5% per year.

In addition to that organic growth, Brookfield estimates that it can boost its earnings by another 3% to 5% per year by continuing to make value-enhancing acquisitions.

Brookfield estimates that it will need to invest $4 billion over the next five years to grow earnings at a more than 10% annual rate. It expects to finance that investment spending via retained cash flow after paying its dividend, asset sales as it recycles capital out of mature lower-return opportunities, and incremental borrowings via its investment-grade balance sheet.

The company should have no shortage of investment opportunities given its focus on renewable energy. It currently has more than 717 megawatts (MW) of projects under construction and another 1,380 MW in advanced development stages. Those are part of a pipeline that consists of 13,000 MW of total opportunities, thanks in part to its recent acquisition of solar project developer X-Elio. To put that opportunity set into perspective, Brookfield Renewable's current portfolio consists of about 19,000 MW of renewable energy-generating capacity.

Meanwhile, the company has a knack for making value-enhancing acquisitions. For example, the company and its parent, Brookfield Asset Management (NYSE:BAM), bought a 51% controlling stake in wind and solar power operator TerraForm Power (NASDAQ:TERP) in 2017. They boosted that investment up to 65% a year later and recently agreed to take full control of TerraForm.

Other recent deals included buying X-Elio, investing in TransAlta's (NYSE:TAC) hydroelectric portfolio, and smaller asset acquisitions in China and Brazil. With trillions of dollars of investment needed in the renewable energy sector in the decades ahead, Brookfield should have no shortage of opportunities to acquire assets from cash-strapped developers.

Millionaire-maker potential

Brookfield has a long history of enriching investors. That trend appears poised to continue given its focus on the enormous opportunity in renewable energy and knack for making value-enhancing investments. The company certainly has the potential to turn a small initial investment into a million-dollar windfall for investors who have the patience to hold for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.