Brookfield Renewable (BEPC -0.15%) (BEP -0.04%) has grown into one of the world's largest clean-power platforms. It has steadily expanded into new energy sources to drive additional growth over the years, and that's given the company the power to grow its dividend.
Brookfield delivered its 11th straight year of increasing its payout by at least 5%. It's also grown it at a 6% compound annual rate since 2001.
The company continues to enhance its ability to grow its dividend by plugging into powerful long-term growth trends. It recently added a new power source by teaming up with uranium fuel provider Cameco (CCJ 3.91%) to acquire nuclear service company Westinghouse Electric. Here's why it's expanding its capabilities into the nuclear-energy sector.
Digging into the deal
Brookfield Renewable and its institutional partners are forming a strategic partnership with Cameco to acquire Westinghouse Electric from Brookfield Business Partners (BBU 5.06%) (BBUC 4.60%) for an enterprise value of $7.875 billion. Brookfield Renewable and Brookfield Business Partners are affiliates of leading global alternative-asset manager Brookfield Asset Manager (BN -0.90%). The former focuses on renewable energy and the clean energy transition, while the latter concentrates on value-add private-equity investments in the industrial and service sectors.
Brookfield Renewable and Cameco are paying $4.5 billion in equity to Brookfield Business Partners while retaining Westinghouse's existing debt. The Brookfield consortium will fund 51% of that equity (about $2.3 billion), while Cameco will cover the other 49% (roughly $2.2 billion).
Brookfield Renewable is pursuing this opportunity through the Brookfield Global Transition Fund I, a $15 billion private equity fund focused on energy-transition opportunities launched this year. It expects to invest about $750 million in equity for the deal through its investment in that fund, giving it a 17% stake in Westinghouse.
Easing the related-party concerns
Brookfield Business Partners initially acquired Westinghouse in 2018 from Toshiba for $4.6 billion after Westinghouse declared bankruptcy the prior year, following big losses on failed nuclear power-plant projects. Brookfield Business has since turned the company around by refocusing it on providing nuclear services and has nearly doubled Westinghouse's profits. It's now cashing in on this investment by selling it to its sibling Brookfield Renewable.
While the related-party deal raises some concerns, Brookfield Renewable's independent directors unanimously approved the agreement after assessing the transaction's fairness from a financial perspective, with the help of independent advisors. It's also not uncommon for private-equity companies to sell a business bought in a turnaround fund to another private-equity fund focused on a longer-term investment strategy.
Given the extensive experience Brookfield Asset Management has managing Westinghouse, it's a known entity, making it a less-risky investment for its renewable affiliate. Finally, Westinghouse is a strong strategic fit for the Global Transition Fund's mandate of making investments that help accelerate the global transition to a net-zero economy while delivering strong returns for investors like Brookfield Renewable.
Brookfield Renewable believes Westinghouse represents an excellent investment opportunity. Its sibling, Brookfield Business Partners, has transformed Westinghouse into a global leader in nuclear services.
Westinghouse services about half the nuclear-power sector, with 85% of its revenue coming from long-term contracts or other highly recurring service positions. That provides it with very stable cash flow. As such, Brookfield Renewable's investment will generate steady income to help support its dividend.
In addition, the company sees significant growth potential for the nuclear power industry. The current energy crisis in Europe and climate-change concerns are fueling a resurgence in the emission-free energy source. Westinghouse is in an excellent position to capitalize on this opportunity by providing services to extend the life of and improve existing nuclear power plants and service new ones as they come online in the future.
Meanwhile, adding Cameco to the partnership should further enhance Westinghouse's ability to win business because it can offer customers a more comprehensive package that includes nuclear fuel. That future growth will supply Brookfield with incremental cash flow to support its plan to grow its 4.3%-yielding dividend by 5% to 9% per year.
Adding another power source to grow the dividend
Brookfield Renewable is becoming a dominant force in leading the clean energy transition. Its investment in Westinghouse will add another way for the company to capitalize on that massive opportunity by giving it a gateway into the resurgent nuclear-energy sector. That should give it more fuel to grow its cash flow and dividend in the future, once again enhancing its attraction as a top dividend stock powered by the energy transition.