Brookfield Renewable (BEPC -0.09%) (BEP) continues to benefit from the energy transition toward cleaner power. That catalyst has helped power strong earnings growth for the company, enabling it to continue increasing its dividend. It recently boosted its payout by another 5.5%, marking its 12th straight year of growing its dividend by at least a 5% annual rate.
The leading renewable energy company has plenty of power to continue growing. Here's a look at last year's solid showing and what's ahead for the company.
Sun-powered results
Brookfield Renewable generated slightly more than $1 billion, or $1.56 per share, of funds from operations (FFO) last year, about 8% higher than in 2021, and benefited from its diversified operations in 2022.
Data source: Brookfield Renewable. Chart by author.
Brookfield's solar energy business powered its growth last year, while FFO from its utility-scale solar assets surged nearly 37%. The company benefited from acquisitions, newly completed solar facilities, and higher power prices in Spain. Meanwhile, FFO from distributed energy (i.e., rooftop and community solar) and sustainable solutions grew by almost 16%. The company benefited from the growth of this portfolio and higher power prices.
Those power sources helped offset slightly lower hydroelectric earnings and an 18% decline in FFO from wind energy. However, the decrease in the wind segment stemmed from the company recording a significant gain in asset sales in 2021. Without that impact, wind-driven FFO would have increased by 12% last year. While Brookfield's wind assets faced headwinds from lower wind resources and asset sales, they benefited from higher prices and acquisitions.
What's ahead for Brookfield Renewable?
Last year was Brookfield's best year ever for securing new investments. It closed or agreed to invest up to $12 billion (it will finance $2.8 billion, with the rest funded by partners) over the next five years. As a result, it has already secured half its growth target during that period. The company sourced opportunities across all the major decarbonization asset classes, including wind, solar, nuclear, battery storage, and transition. These investments should help power its growth for the next several years.
The company also continued to accelerate its development activities. It commissioned 3.5 gigawatts (GW) of projects last year that will add $45 million of annual FFO, and it has another 19 GWs under construction or in advanced stages. In addition, it has several sustainable solutions projects in the pipeline, including carbon capture and storage, recycling, and renewable natural gas.
These projects will supply about $235 million of incremental FFO as they come online over the next few years. The company has more projects in earlier stages as its total renewable energy development pipeline has grown to 110 GWs, which is enough to power over 15 million homes. Further, it has the option to invest in additional sustainable solutions projects.
Brookfield has secured the bulk of the funding needed to finance its growth. It executed $10 billion of financings last year, generating $2 billion ($1.2 billion net to the company) in proceeds to bolster its liquidity to $3.7 billion. The company also completed or is advancing up to $4.6 billion (roughly $1.6 billion net to the company) of asset sales to finance its expansion.
As a result, Brookfield has already secured and funded about 8% annual FFO per share growth through 2027. Meanwhile, additional organic growth drivers and value-enhancing acquisitions could drive FFO growth of as much as 20% annually during that time frame. This outlook easily supports Brookfield's plan to grow its dividend by 5% to 9% per year.
Positioned for powerful returns
Brookfield Renewable was busy securing new growth drivers and funding last year. Because of that, it has locked in a solid growth rate for the next few years, with ample upside potential as it secures additional power sources.
Despite all that success, shares have been under pressure over the past year due to market turbulence, which has driven its dividend yield up over 4%. That combination of income and growth at a lower valuation sets the company up to produce double-digit total returns in the coming years. Those factors make it look like a magnificent investment opportunity these days.
