Brookfield Renewable (BEP -1.66%) (BEPC -0.89%) has a long history of enriching its investors. Over the last decade, the renewable energy company has generated a more than 430% total return, which has significantly outpaced the S&P 500's roughly 260% total return during that timeframe. It has also vastly outperformed the market since its inception 20 years ago and in the last one- and five-year periods. Because of that, there has hardly ever not been a good time to buy its stock.
That certainly seems to be the case these days, as its future is just as bright as its past. Because of that, it's at the top of my list of renewable energy stocks to buy right now.
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Creating a renewable-energy-producing juggernaut
At the end of July, Brookfield Renewable completed its acquisition of TerraForm Power. That transaction transformed it into one of the largest integrated pure-play renewable power companies in the world. The combined entity currently has the capacity to produce 19,300 megawatts of power via 5,288 generating facilities in 17 countries. It owns a diversified portfolio of assets, with hydroelectric producing 66% of its cash flow, followed by wind at 27% and solar at 7%. It sells about 95% of the electricity it produces under long-term, fixed-rate power purchase agreements or government-regulated rates. Those structures enable it to generate steady cash flow.
The merged company also has one of the strongest balance sheets in the renewable energy sector, including the top investment-grade credit rating and $3.4 billion of liquidity. That provides it with unparalleled financial flexibility to invest in expanding its portfolio via development projects and acquisitions.
High-powered growth ahead
Brookfield expects the TerraForm merger to be immediately accretive to its cash flow. However, it's just one aspect of the company's long-term growth drivers. In its view, a quartet of organic growth initiatives should power 6% to 11% annual earnings growth over the next several years. About half that amount will come from increasing the profitability of its existing assets via inflationary contract rate escalations, recontracting at higher power rates, and cost reductions. The other half will come from its development pipeline.
Brookfield currently has more than 15,000 MW of renewable energy projects in various stages of development. A significant portion is solar energy facilities. The company recently agreed to acquire a massive 1,200 MW project in Brazil, one of the world's largest solar developments. It expects to invest $200 million into this project, which should start up in 2023.
It also bought 14 smaller solar developments in the country last year that it could complete in the future. Meanwhile, Brookfield has a commercial rooftop solar development joint venture in China, and it recently bought a 50% stake in a global solar energy project developer. The company also has wind, hydro, and storage projects in development.
Acquisitions will remain another key growth driver for the company. Brookfield sees the potential of growing its cash flow by an additional 3% to 5% per year by making accretive acquisitions. One of the ways it intends to fund these deals is by selling mature assets and reinvesting the cash into opportunities with more upside.
Brookfield sees its cash flow expanding by 9% to 16% per year between organic growth and acquisitions. That would easily support its plan to increase its 4%-yielding dividend by 5% to 9% per year.
A fully powered dividend growth plan
Brookfield Renewable has generated market-crushing total returns for its investors over the years by steadily growing its portfolio of cash flowing renewable energy assets and its dividend. Those trends should continue in the coming years, thanks to Brookfield's top-notch financial profile and an extensive pipeline of expansion projects. Because of that, it should have all the power needed to continue outperforming, with it targeting to generate total annualized returns of 12% to 15% over the long term, which is why it's such a great renewable energy stock to buy these days.
