The iShares Global Clean Energy ETF is off by about a third since its early-year highs in 2021. That suggests that clean energy stocks are already in a bear market, including the roughly 30% drop in the value of Brookfield Renewable Partners (BEP -1.66%). Wall Street tends to go to extremes, though, so this could be a good opportunity for long-term dividend growth investors to jump into the clean energy space, and specifically Brookfield Renewable Partners. Here's why this partnership could help power your portfolio as the world's energy markets increasingly go green.
Balancing act
The big clean energy stories in recent years have been in solar and wind. They are clearly important, but investors often forget that there are other forms of clean energy, notably hydroelectric. This is a very old technology that is reliable, well developed, and can provide baseload power (the minimum amount of power needed to be supplied to the electrical grid at any given time), which is something that intermittent solar and wind can't do. Hydroelectric makes up around 50% of Brookfield Renewable Partners' cash flow.
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Don't underestimate the importance of this, as it provides a reliable foundation on which the company has been able to grow its other generating assets. Hydro is a key piece of the company's average contract life of 15 years. And while hydro is destined to shrink in importance over time, that's not a bad thing. Essentially, most of the good hydro opportunities have been developed, since there's a natural limitation to where the technology can be employed. Given the early stages of solar and wind development, it is simply easier to build out those operations.
So there's a strong core here, but the growth is going to come from other areas. Solar (15% of cash flow) and wind (22%) are more exciting. To put some numbers on that, the partnership has plans to expand its wind capacity of 5.4 gigawatts by another 8.8 gigawatts. And solar capacity is expected to grow 34.8 gigawatts over its current 2.6 gigawatt level.
Brookfield Renewable Partners' transition business is also in growth mode, with a current capacity of 4.9 gigawatts and development projects of 15.3 gigawatts. Transition is sort of a catchall that includes things like battery storage.
Taking it to the next level
So Brookfield Renewable Partners has spread its eggs across a number of different technology baskets. Diversification is good for your portfolio, and it has historically proved to be good for Brookfield Renewable Partners' portfolio, too. Note that the distribution has been increased annually at a 6% compound annual rate over the past decade. But there's another layer here.
About 64% of Brookfield Renewable Partners' cash flow is generated from North America. That's a solid core. The rest comes from Latin America (19% of cash flow), Europe (15%), and Asia (the remainder). Note, too, that these are big regional classifications. There are a lot of countries underlying these categories, even in North America, which encompasses the Untied States, Canada, and Mexico, among a host of other smaller countries. So there's a lot going on here and a lot of opportunity, even in the company's largest region.
To put a dollar figure on this, investment-grade rated Brookfield Renewable Partners believes it can invest between $1 billion and $1.2 billion a year in each of the next five years. So there's a lot of growth, and it's being spread across both the type of power project being developed and the geographic region in which it is being built. That's a powerful mix that should support the partnership's long-term goal of 5% to 9% annual distribution growth.
Years to go before it rests
While hardcore ESG advocates might like for the world to simply switch overnight to clean energy, it is far more likely to take decades. And Brookfield Renewable Partners has positioned itself to participate in a widely diversified manner that should reward investors for decades to come.
Along with that balanced portfolio, it offers a generous 3% distribution yield. All in, for those looking for a single investment to cover the clean energy space, Brookfield Renewable Partners could be the one name you'll want to add to your portfolio.
