Brookfield Renewable (BEPC +0.00%)(BEP +0.14%) has tremendous organic growth prospects. It sees a trio of catalysts powering 7% to 12% annual growth in its funds from operations (FFO) per share through 2028.
In addition to its organic growth, Brookfield sees the potential for M&A activities to increase its FFO per share by more than 9% annually. Given all its acquisitions over the past year, achieving the higher end of its growth outlook is increasingly likely.
NYSE: BEPC
Key Data Points
Banking another deal
The Brookfield Global Transition Fund (BGTF), a fund focused on energy transition investments managed by Brookfield Renewable, recently agreed to acquire the renewable energy arm of Banks Group. It's reportedly paying around $1 billion for Banks Renewable, which owns and operates 11 onshore wind energy assets in England and Scotland. In addition, Banks Renewable has a large pipeline of onshore wind, solar, and battery storage projects under development.
The transaction comes at a good time. The U.K. government recently ended an eight-year ban on new onshore wind projects. Instead of holding the industry back, it plans to streamline the approval of new projects. That could provide Brookfield with new growth opportunities to develop additional onshore wind farms in that country.
That deal aligns with Brookfield's strategy of acquiring operating platforms with built-in growth. For example, Brookfield agreed to acquire Duke Energy's commercial renewable energy platform earlier this year. Duke Energy Renewables has 5.9 gigawatts (GW) of operating and under construction assets along with a 6.1 GW development pipeline. That deal will supply Brookfield with incremental income from the operating assets and growth from the development pipeline.
A powerful growth plan
With Banks Renewable, Brookfield adds to its already robust M&A growth drivers:
Image source: Brookfield Renewable.
As that slide shows, Brookfield has three other secured deals in the pipeline, setting it up to see strong M&A-driven earnings growth again next year. That positions the company to deliver high-end earnings growth.
Meanwhile, these deals add to its long-term growth prospects. Most of its acquisitions come with development pipelines. Brookfield sees its massive development pipeline powering 3% to 5% FFO per share growth each year. Its assets also typically feature embedded growth. Brookfield typically indexes the rates on its power sales contracts to inflation. That catalyst should add 2% to 3% to its bottom line each year. Finally, margin enhancement activities, such as signing new power price contracts at higher market rates when legacy agreements expire, could add another 2% to 4% to its FFO per share each year. Add everything up, and Brookfield should grow its earnings by more than 10% annually in the coming years.
That should give it plenty of power to continue increasing its dividend. Brookfield boosted its payout by 5.5% earlier this year. That marked its 12th straight year of increasing its payout by at least 5% annually.
Brookfield is targeting to increase its dividend by 5% to 9% per year over the long term. While it can support that plan solely through its organic growth drivers, Brookfield's M&A boost could give it the fuel to grow its payout toward the high end of that target range.
A compelling opportunity
Brookfield Renewable continues to supercharge its growth by making acquisitions, driven partly by its BGTF strategy. These deals position the company to deliver high-end earnings growth in the coming years. That could give the company the fuel to increase its dividend toward the upper end of its long-term target range.
Meanwhile, that payout has become even more attractive following the nearly 40% slide in Brookfield's share price from its 52-week high that has resulted from the pressure from higher interest rates. This plunge has pushed its dividend yield over 6%. That gives investors an attractive entry point for a company with tremendous growth ahead.
