Brookfield Renewable (BEPC 0.09%) (BEP 0.19%) has become an exceptional income-producing investment over the years. The global renewable energy company has delivered a dozen straight years of increasing its dividend by at least 5% annually. The company currently offers a 4.9% dividend yield, which is several times above the S&P 500's 1.6% yield.
While known more for its income-producing capabilities, Brookfield Renewable has an excellent track record of growing its income. Its funds from operations (FFO) have grown by more than 10% per share each year since 2012. Given the increased global focus on cleaner energy, Brookfield's growth appears poised to accelerate over the next five years.
Building a bigger growth platform
Brookfield Renewable has been active over the past year and has invested in several new growth platforms. Notable deals it has closed or that are in the pipeline include:
- Westinghouse: Brookfield formed a strategic alliance with Cameco to acquire Westinghouse Electric Company (the world's largest nuclear services business) for nearly $7.9 billion. Brookfield and its partners will own 51% of the company.
- Origin Energy: Brookfield and several strategic partners agreed to acquire Australian utility Origin Energy for $18.7 billion. Brookfield and some partners will acquire Origin's energy markets business, while another party will buy its integrated gas business.
- X-Elio: Brookfield will acquire KKR's 50% interest in their renewable energy development joint venture X-Elio.
- Duke Energy Renewables: Brookfield and its partners agreed to buy Duke Energy's commercial renewable energy business for $2.8 billion.
- CleanMax Enviro Energy Solutions: Brookfield acquired a controlling stake in the Indian solar panel maker for $350 million.
- Avaada: Brookfield will invest up to $1 billion to help Avaada fund its green hydrogen and green ammonia projects in India.
These deals will provide a noticeable boost to Brookfield's bottom line over the next two years:
Image source: Brookfield Renewable.
As these deals showcase, Brookfield's recently closed transactions will significantly increase its cash flow this year, while other deals it secured provide it with visible growth for next year.
Meanwhile, most of its acquisitions have built-in growth prospects. For example, X-Elio currently expects to have 3 gigawatts (GW) of assets in operation, under construction, or ready to build by the end of this year. In addition, it has another 10 GW of projects in its advanced development pipeline.
Likewise, Duke Energy has 5.9 GW of operating or under construction projects and another 6.1 GW in the pipeline. Finally, Brookfield plans to invest heavily in decarbonizing Origin Energy by replacing its coal-fired power plant with renewables.
An enhanced growth profile
Brookfield's recent investments are one of several factors that position it to deliver accelerated growth over the next several years:
Image source: Brookfield Renewable.
The company sees the potential for each driver to deliver growth at or above that range in the future.
For example, elevated inflation could grow Brookfield's earnings by 2% to 4% this year as it indexes rates on its long-term contracts to higher inflation rates. Meanwhile, higher power prices could drive enhanced margin growth. Brookfield has captured an average price of $75 per megawatt-hour (MWh) this year on contract renewals, up from $70 per MWh last year. The company has also accelerated its development pipeline by completing more projects, which it's delivering on time and on budget.
Finally, Brookfield sees mergers and acquisitions (M&A) as an even bigger future growth driver. Last year, it anticipated that M&A activities would add up to 9% of its funds from operations (FFO) per share each year through 2027. It now forecasts that M&A could drive additional FFO per share growth of more than 9% annually through 2028.
A big driver of the M&A acceleration is its Brookfield Global Transition Fund (BGTF) strategy. It closed its first $15 billion BGTF last year and has already started raising money for BGTF II, which it believes could top $20 billion. These funds enable it to make more investments to drive accelerated M&A growth.
A high-growth high-yield stock
Brookfield Renewable believes it could deliver accelerated growth over the coming years. It has secured several new investments to boost its bottom line in 2023 and 2024 while enhancing its longer-term growth profile. Meanwhile, elevated inflation and higher power prices could drive accelerated organic growth over the near term, while its BGTF strategy could power enhanced M&A growth.
Add that growth to Brookfield's high-yielding (and steadily rising) dividend, and it could produce prodigious total returns in the coming years. That makes it look like an exceptional stock to buy for the long term right now.
