Brookfield Renewable (BEPC 2.83%) (BEP 1.92%) offers investors the best of both worlds. It pays an attractive dividend that currently yields more than 4%. The company is also growing its earnings rapidly.
That growth profile was on full display during the third quarter. The renewable energy company grew its funds from operations (FFO) by more than 15% per share. It also secured an impressive list of new investments to drive future growth. That should give it the fuel to continue growing its high-yielding payout while producing powerful total returns.
A trio of power sources
Three catalysts powered Brookfield Renewable's double-digit FFO growth in the third quarter:
- Strong asset availability. Brookfield's globally diversified renewable energy fleet performed well. It capitalized on strong wind, solar, and hydro resources during the period to produce lots of clean power.
- Higher realized power prices. Brookfield benefited from inflation escalation clauses in its existing power contracts, enabling it to raise prices to match inflation. The company was also able to secure higher power prices for its uncontracted fleet, and as expiring contracts rolled over to higher market rates.
- Contributions from growth investments. Brookfield has completed 3 gigawatts (GW) of new renewable energy development projects over the past year. The company has also acquired several operating assets, providing an additional boost to its cash flow.
The company made significant progress on its strategic priorities in the quarter. Brookfield signed contracts to deliver an incremental 2,600-gigawatt hours (GWh) of clean energy per year to customers, including 1,200 GWh to corporate clients. These contracts will provide it with predictable cash flow.
Brookfield also continues to complete development projects. It has nearly finished its 850-megawatt Shepherds Flat wind energy repowering project to replace older wind turbines with larger ones capable of producing more power. The company is on track to complete another 1.4 GW of projects by year-end. Together with others finished this year, these developments will generate about $50 million of annual FFO. That's a meaningful amount for a company that produced $243 million of FFO in the third quarter.
Lining up additional power sources
Brookfield already had an extensive backlog of renewable energy projects heading into the third quarter. That didn't stop the company from adding to its total while also securing additional growth drivers.
Brookfield closed or secured $1.5 billion of net investments during the quarter, pushing its year-to-date tally to $2.8 billion. These investments run the gamut from utility-scale wind and solar energy, distributed generation (i.e., rooftop and community solar), nuclear, battery storage, and energy transition investments.
One of the more notable investments it lined up was a partnership with nuclear fuel supplier Cameco (CCJ 3.55%) to acquire nuclear service provider Westinghouse Electric. Brookfield will invest $750 million for an interest in the company, which generates very predictable cash flow from long-term contracts. Westinghouse should also benefit from renewed interest in zero-emissions nuclear energy, which more governments see as a solution to their energy security and climate goals.
Brookfield also made two small energy transition investments, positioning it to capitalize on potentially large market opportunities. It formed a partnership with LanzaTech, which transforms waste carbon into fuels, fabrics, and packaging. It also made a small investment in a recycling business. Brookfield could invest more money into both entities in the future to help support their expansion.
Brookfield has now lined up a significant pipeline of growth investments. It has over 100 GW of renewable energy development projects, which is over four times its current operating capacity. In addition, it has an 8 million metric tons per year carbon capture and storage pipeline. The company has also added nuclear service capabilities and other transition-related investments like carbon utilization and recycling. This massive pipeline of development opportunities positions Brookfield to continue growing at a high rate for years to come.
A massive amount of growth ahead
Brookfield has a growing number of growth drivers. Those catalysts should give it the power to continue delivering strong FFO growth, allowing it to steadily increase its high-yielding dividend. That combination of income and growth could give it the fuel to produce powerful total returns, making Brookfield look like an attractive long-term investment opportunity.