Brookfield Renewable (NYSE:BEP)(NYSE:BEPC) sees an incredibly bright future in solar energy. The company, which is currently a global leader in hydroelectric power, has spent the past few years building a solar energy platform. Those investments are starting to pay big dividends for the company, as they should power significant growth over the next several years. Brookfield thus tops my list as the best solar stock to buy for 2021 and beyond.

Going on a solar shopping spree

Brookfield Renewable has been methodically building a solar energy platform over the last several years. Its first major foray in solar came when it joined its parent, Brookfield Asset Management (NYSE:BAM), to acquire controlling stakes in wind and solar energy producers TerraForm Power and TerraForm Global in 2017. Those deals enabled it to purchase an interest in strong operators at a discounted price after their former sponsor when bankrupt. 

Solar panels under a blue sky at sunset.

Image source: Getty Images.

Brookfield's next notable solar energy deal came in early 2018 when it formed a joint venture with GLP, a leading modern logistics and industrial facility provider. The two companies planned to install 300 megawatts (MW) of rooftop solar projects in China in three years as part of a broader 1 gigawatt (GW) development pipeline. 

The company formed another strategic joint venture in 2019, partnering with private equity giant KKR (NYSE:KKR) to own X-Elio. That company had 273 MW of operating solar capacity, 1.413 GW under construction, and a broader 4.8 GW development pipeline. 

Brookfield has continued to acquire solar energy assets over the last year. It bought the rest of TerraForm Power that it didn't already own, invested in a 1.2 GW solar development project in Brazil, -- one of the largest in the world -- and recently agreed to purchase the solar business of utility Exelon (NASDAQ:EXC).

A solar-powered growth plan

As a result of those investments, Brookfield now gets about 9% of its cash flow from its solar energy portfolio, compared to 64% from hydro and 27% from wind. That percentage should continue growing in the coming years as it builds its extensive development pipeline and continues to make acquisitions. The company currently has roughly 10 GW of solar energy projects under development, part of its broader 18.3 GW renewable energy project backlog. That's a sizable pipeline considering that the company currently has 19.4 GW of operating assets, one of the world's largest renewable energy portfolios.

Brookfield is putting such a heavy emphasis on solar because of what it sees ahead for the technology. It wrote in its second-quarter shareholder letter:

As a result of technology advances and reductions in construction costs, solar can stand on its own without subsidies and more importantly, is now among the lowest cost sources of conventional power globally. To put this in perspective, solar costs over the last five years-the period in which we have built our solar business-have gone from over $4 per watt to install, to less than a $1 per watt in almost all jurisdictions around the world. As a result of these favorable economics, as well as the renewable nature and perpetual source of free energy, we believe it is possible that in ten years from now the majority of the production capacity of Brookfield Renewable will be solar capacity. It is not that we do not believe in wind or hydro but the growth in solar and the ability for us to develop and earn strong risk adjusted returns should enable us to grow our solar operations at a far greater pace. 

To put the returns into perspective, Brookfield estimates that it will achieve about a 20% return on its investment in the massive solar energy development project in Brazil. Because of returns like that, Brookfield believes it can grow its cash flow per share at an 11% to 16% annual rate through at last 2025. That should give it plenty of power to achieve its plan to grow its dividend at a 5% to 9% yearly rate.

Expect another year of supercharged returns

Brookfield has done an excellent job creating shareholder value over the years. It produced a jaw-dropping 66% total return over the past year and has generated a 19% total annualized return since its formation two decades ago. That outperformance seems likely to continue as its solar-powered investments from this year start paying dividends. That's why Brookfield Renewable tops my list as the best solar stock to buy for 2021.


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.