The world still needs carbon fuels, but the big investment direction is clearly toward clean energy. That's exactly the opportunity Brookfield Renewable Partners (BEP 0.19%) is taking advantage of. Investors can tag along for the ride as this limited partnership helps make the world more green, collecting a generous and growing distribution along the way. There's a lot to like here.
What is BEP?
From a big-picture perspective, Brookfield Renewable Partners is a partnership that owns clean energy assets. But there's more to the story than that. That's because its general partner, the company that handles day-to-day operations, is Brookfield Asset Management (BAM 1.87%). Although Brookfield Renewable has only been a public entity since 2011, Brookfield Asset Management has been overseeing infrastructure investments for more than 100 years. There's a lot more experience here than first meets the eye.
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There's also a lot more money. Brookfield Renewable Partners has a market cap of around $13 billion. But Brookfield Asset Management will often partner with it on acquisitions, investing money on behalf of its other clients. And then there's Brookfield Renewable Corporation (BEPC 0.09%), which has a market cap of a little less than $6 billion. This entity is, effectively, the same as Brookfield Renewable Partners, but is a separate share class structured as a traditional company and not a partnership. That makes it easier for institutional investors to own it, but it also means there's an additional source of capital for the larger Brookfield Renewable entity.
There are a lot of moving parts here, so this probably isn't the best fit for investors who don't want to dig in a little to understand what they own. But that work would be well rewarded if you want a single investment that will give you broad exposure to the clean energy sector.
Big and getting bigger
Today, Brookfield Renewable's portfolio is roughly 50% hydroelectric power. This is a very well understood and reliable power source, known for high levels of availability. It provides a strong foundation on which to invest in other forms of clean energy. On that front, 20% of cash flows come from wind power, 15% from utility scale solar, and the rest from distributed power and sustainable solutions. That basically covers most of the clean energy space you'd want to be involved in as an investor, all within one entity.
Here's the really interesting thing. Right now Brookfield Renewable has a portfolio of around 25 gigawatts of generating capacity, which is fine. But management believes it has a pipeline of projects with 110 gigawatts of power. In other words, the portfolio could expand by more than four times what it is today. All that growth won't happen in one year, of course, but it suggests that there is a long runway for growth ahead as the world continues to use more clean energy. That backs up management's long-term goal of 5% to 9% annual distribution growth over time.
On that front, the partnership has increased its distribution by at least 5% each year since coming public in 2011. So it has lived up to the goal, with a compound annual dividend growth rate of roughly 6% over the past decade. Notably, the partnership has an investment grade rated balance sheet, so there's a solid financial foundation backing that quarterly payment.
As for valuation, units of Brookfield Renewable Partners have fallen around 40% from their peak levels in 2021. At those heights, investors were probably a bit too excited about the prospects here, pushing the yield down to around 3%. After the current price drop, however, the yield is a much more attractive 4.6%. (The dividend yield on Brookfield Renewable Corporation is lower at 4.2%, a fact that likely speaks to more demand for the shares among institutional-level investors.)
From a long-term perspective, the current yield is a lot lower than it had been in the past. But given the successful history and outlook for future growth, the current yield is probably a fair entry point for long-term investors.
Worth the effort
Brookfield Renewable is not simple to wrap your head around, and that could keep some investors away, perhaps justifiably so. However, if you are willing to put in the leg work, getting to know this unique clean energy investment could be well worth the effort. It has a generous and growing dividend, backed by an entity with a long track record of success in an industry set to see continued growth ahead. The positives will probably outweigh the minor negatives here for most investors.
