A Green New Deal promises to accelerate the country's transition to renewable energy. While neither presidential candidate has come out in favor of the entire plan as proposed, former Vice President Biden does support many of the ideas. Because of that, if he's swept into office along with a blue wave, giving Democrats control of both houses of Congress, some form of the Green New Deal will likely become law, which would provide a jolt to the renewable energy sector.
However, Brookfield Renewable (BEP -0.07%) (BEP -0.07%) should thrive in the coming years, even if that doesn't happen. That's because the leading global renewable energy producer has a plan to grow shareholder value, no matter the outcome of this election.
High-powered growth ahead
Brookfield Renewable has been growing shareholder value at a healthy clip since its formation two decades ago. Overall, the renewable energy producer has expanded its dividend at a 6% compound annual rate, which has helped power average annual total returns of 18%, well above the 6% yearly pace of the S&P 500 during that time frame.
The company has complete confidence that it can maintain that upward trajectory for at least the next five years. In Brookfield's view, it can organically grow its cash flow by 6% to 11% per year through 2025, powered by three sources:
- Embedded inflation escalators in existing power-purchase agreements should add 1% to 2% to its bottom line each year.
- Margin-expansion opportunities (falling operating costs and higher rates on new contracts) should provide another 2% to 4% annual bottom-line boost.
- A growing backlog of development projects should add an incremental 3% to 5% to its annual profits.
On top of all that, Brookfield believes that it can continue completing a steady stream of acquisitions. In the company's estimation, those deals can add a net 4% to 5% in annual earnings after adjusting for asset sales used to fund new investments.
Add it all up, and Brookfield sees 10% to 16% annual earnings growth through 2025. At the midpoint, this implies an acceleration from the roughly 10% yearly growth rate it has delivered over the past decade. This forecast easily supports the company's view that it can grow its 3.7%-yielding dividend by 5% to 9% each year during that time frame. Add the yield to its growth rate, and Brookfield seems set to generate total annual returns in the low- to mid-teens.
What's powering this outlook?
One reason Brookfield is increasingly optimistic about its growth potential is its rapidly expanding backlog of development projects. It currently has 18 gigawatts (GW) of renewable energy projects in the pipeline, including 3.5 GW under construction or in advanced-development stages. To put its backlog size into perspective, Brookfield currently has 19.3 GW of operating capacity, implying it has enough projects to nearly double its portfolio if it built them all.
Brookfield has a diversified project backlog that includes hydroelectric, onshore wind, solar, and storage opportunities. However, solar is beginning to emerge as a significant growth driver for the company. Due to rapidly falling costs, solar energy is on track to become the cheapest form of bulk power generation over the next few years, even as subsidies wind down.
This forecast also assumes the Green New Deal never becomes a reality in any form. Because of that, Brookfield has accelerated its investments into this power source by securing several development partnerships and projects in recent years that should help power its growth for years to come.
Plenty of power without the Green New Deal
While a Green New Deal would undoubtedly help Brookfield Renewable, the company is poised to thrive, even if that plan never comes to fruition. That's mainly due to its investments in solar energy developments, which will benefit from rapidly falling costs over the next few years.
Because of that and the company's other growth opportunities and initiatives, it should have plenty of power to continue generating excellent total returns. That makes it a great renewable energy stock to buy ahead of the election.