I have several energy stocks in my portfolio. My favorite is Brookfield Renewable (BEP 4.49%) (BEPC 1.58%). It has done an excellent job creating value for shareholders like me over the years by steadily growing its cash flow per share and dividend.

But as good an investment as it has been in the past, I think Brookfield could be even better in the future. Here's why.

Wind turbines at sunset by the shore.

Image source: Getty Images.

A global leader in the renewable power megatrend

Brookfield has built one of the largest renewable energy platforms in the world over the years. The company has steadily expanded by acquiring and developing high-quality, cash-flowing renewable energy assets. 

That strategy has paid big dividends for its investors. Brookfield has grown its funds from operations (FFO) per share at a more than 10% annual rate over the last decade. That's helped support 6% yearly growth in the dividend since 2012, pushing the yield to 2.9%. Since its inception, Brookfield Renewable has generated a 20% annualized total return. 

That gives the company a strong foundation to continue creating shareholder value as the decarbonization megatrend kicks into high gear in the coming years. Brookfield has expertise in every major category, including hydroelectric, wind (offshore and onshore), solar (utility-scale and distributed generation), energy storage, green hydrogen, and energy transition assets. Because of that, it can capture opportunities across the spectrum, enabling it to become the partner of choice for companies and institutions looking to decarbonize their operations.

A bright future

Brookfield believes it can deliver robust growth in FFO per share over the next several years as global decarbonization efforts accelerate. The company's existing assets can support 3% to 6% increases in FFO per share through 2025. Powering its outlook are inflation escalators on existing contracts and its ability to secure higher rates as existing agreements expire.

On top of that, Brookfield has an extensive development pipeline. The company ended the second quarter with 31 gigawatts (GW) in its global development pipeline. To put the size of its backlog into perspective, it spent decades building its current operating portfolio, which has 21 GW of capacity. The company estimates that it can invest $250 million to $350 million per year into its development pipeline, yielding 3% to 5% annual growth in FFO per share. Brookfield can finance these investments with retained cash after paying its distribution and leveraging its top-tier balance sheet.

Add it up, and the company can organically grow its business by 6% to 11% per year through 2025. That easily supports its plan to increase its high-yielding dividend at a 5% to 9% annual rate.   

However, that's just the tip of the iceberg. Brookfield believes it can continue making highly accretive mergers and acquisitions (M&As). It can deploy up to $1.5 billion into M&A annually, which could boost its FFO per share by up to 9% per year. It has already invested $500 million in 2021 on a range of deals, putting it on track to capture a nice M&A bump this year. The company is financing this growth through its capital recycling program of selling lower-return assets and using the cash for better-returning opportunities.

All told, Brookfield could deliver up to 20% annual growth in FFO per share over the next few years. That would enable the company to increase its dividend near the high end of its target range, improving its payout ratio and making it even stronger financially. That combination of growth and income should power well-above-average total returns.

One of the best-positioned companies in this megatrend

Brookfield Infrastructure is a global leader in one of the biggest megatrends of our lifetime. It has an excellent track record of creating shareholder value by steadily building one of the highest-quality businesses in the sector. Because of that, it's in an ideal position to continue growing value for investors in the coming years.

That high probability of delivering compelling total returns is why Brookfield Renewable is my favorite energy stock.