The COVID-19 pandemic has disrupted entire industries in ways that will change them permanently. Airlines, cruise operators, and many brick-and-mortar retailers are the obvious losers, while many cloud-based companies that offer tools to make remote work easier and more productive are proving to be huge winners.
Amidst all the fear and excitement, you could be missing out on a boring business that might deliver some of the best returns out there: Brookfield Renewable Partners (NYSE:BEP). The owner and operator of renewable-energy-producing assets may not be as sexy as the latest software-as-a-service (SaaS) provider, but its track record of delivering exceptional returns and big dividends more than makes up for the lack of excitement in its business.
A great history points toward a great future
Since going public over a decade ago, Brookfield Renewable has delivered incredible returns:
The bulk of its results for the first decade was built on hydroelectric power production. But over the past several years, management has pivoted to wind and solar as the costs of those technologies have come down, making them competitive with all but the newest and most-efficient natural gas power plants.
To help accelerate its solar and wind business, Brookfield Renewable took a majority stake in Terraform Power (NASDAQ:TERP) and recently reached an agreement to buy the remaining 35% of the company it didn't already own. Last year, Brookfield Renewable also struck a deal to buy half of Spanish solar developer X-Elio, and now touts a pipeline with more than 13,000 MW of future projects.
For context, Brookfield Renewable ended the first quarter with 19,000 MW of total capacity. The takeaway here is that there's a massive amount of future demand for renewable energy, and Brookfield Renewable management is constantly taking steps to ensure it's ready to participate in that growth.
The trends that underpin the opportunity
Brookfield Renewable's existing portfolio makes it one of the biggest independent renewable-energy producers in the world, and its near-term pipeline has it lined up for a lot more growth in the next few years. But those growth prospects won't end after those 13,000 MW of projects are completed.
On a global basis, the world is getting bigger, more wealthy, and more urban. The global middle class is set to grow by about 1 billion people over the next decade, and many of those new members of the consumer class will reside in cities. It's going to take a big expansion in global power generation to meet the future demand that's driven by the growth of the middle class. Factor in the push to make renewables a bigger part of the global energy pie, and there are multiple big tailwinds for Terraform Power.
To put it in further context, the International Energy Agency projects that global renewable-energy generation could grow from about 7,000 terawatt hours (TWh) in 2018 to more than 25,000 TWh in 2040. That's a nearly fourfold growth in renewables over the next two decades that Brookfield is likely to play a role in developing.
Brookfield is worth buying now and holding for years to come
It's worth mentioning that Brookfield Renewable has crushed it over the past year, as its share price is up 42%. The dividend yield is above 4% but well below the average over the past decade. That's reason for some to worry that Brookfield Renewable is overvalued, but I'm not convinced that's the case. Brookfield Renewable has an incredible track record of payout growth and a stated goal of growing the payout 5%-9% every year. It's done even better than that over its history:
In the current interest rate environment, many income investors will look to investments like Brookfield Renewable, with assets that can generate steady cash flows in any economic environment. That's not to say that the price won't fall in the short term -- we saw Brookfield Renewable lose 46% of its value in barely over a month earlier this year:
For investors willing to hold through these periods of volatility and act as buyers when the market creates an opportunity, Brookfield Renewable is absolutely worth buying at today's prices.