Brookfield Renewable (BEP 0.19%) (BEPC 0.09%) has grown into one of the world's largest renewable energy producers. It has steadily developed new renewable energy projects, which, along with other organic drivers, have powered steady earnings growth. In addition, the company routinely makes value-enhancing acquisitions.
That latter power source is about to kick into high gear. The company recently closed a couple of acquisitions and has a few more needle-moving deals in the pipeline. They position the renewable energy juggernaut to end the year on a high note and give it lots of momentum heading into 2024.
That should give it more power to increase its dividend. Brookfield has raised its payout by at least 5% per year over the last dozen years.
Steady as it goes
Brookfield Renewable's earnings growth slowed in the third quarter. While its funds from operations (FFO) grew by more than 4% year over year overall to $253 million, it was flat on a per-share basis at $0.38. That pushed its year-to-date total to $840 million, or $1.29 per share, nearly 7% higher on a per-share basis compared to last year.
The company benefited from the stable underlying performance of its globally diversified renewable energy portfolio. Brookfield has capitalized on elevated inflation. Its contracts allow it to pass inflation through to customers by raising power rates in line with the inflation rate. Brookfield also benefited from its development plan and recent acquisitions.
About to hit the accelerator
Brookfield recently closed a couple of acquisitions and has several more deals in the pipeline that should close over the next few months. As a result, "we are adding significant incremental FFO and positioning ourselves to continue to deliver on our decade long track record of 10%+ FFO per unit annual growth," stated CEO Connor Teskey in the third-quarter earnings press release.
The company has already closed its acquisition to buy out its partner's 50% interest in X-Elio and buy Duke Energy's former commercial renewable energy platform. The operating assets from those two investments will supply it with incremental cash flow. Meanwhile, both have extensive development pipelines to power growth in the coming years.
In addition, Brookfield expects to close its investment in nuclear energy service company Westinghouse Electric shortly. It's also working to close its deal for Australian utility Origin Energy. The company recently received authorization from the Australian Competition and Consumer Commission to close that transaction, which still needs shareholder approval. While a top Origin Energy shareholder remains opposed to the deal, Brookfield expects to close the transaction early next year.
Meanwhile, Brookfield and its partners recently agreed to acquire Banks Renewable for $600 million ($150 million of which it will fund). Banks is a leading U.K. renewable developer with a small operating portfolio and extensive development pipeline. Brookfield sees this deal closing by the end of this year.
The company also agreed to partner with Axis Energy, a leading renewable energy developer in India. Brookfield and its partners will invest up to $850 million ($170 million that it will fund) over the next three years to develop wind and solar energy projects.
Brookfield is investing $1.5 billion of its capital in these transactions. It estimates that these investments will add $200 million to its annual FFO, which will grow as it invests in expanding those businesses.
Enhancing its organic growth profile
Most of Brookfield's acquisitions come with an extensive development pipeline. They've added to the company's already massive backlog of future renewable energy projects. The company now has almost 150 gigawatts (GW) of projects under development. That's nearly one and a half times bigger than it was at this time last year. That backlog will power growth for years to come.
The company expects to commission nearly 5 GW of projects this year and 7 GW to 8 GW in 2024 and 2025. The newly completed projects will add about $70 million in annual FFO, while its 2024-2025 slate should boost its annual FFO by a combined $180 million.
Powerful growth ahead
While Brookfield Renewable's growth slowed in the third quarter, a reacceleration is ahead. The company expects to close several needle-moving acquisitions. Meanwhile, it continues to expand its already extensive development pipeline, which will supply it with meaningful growth in the coming years.
Those two drivers support Brookfield's outlook that it can grow its FFO per share by more than 10% annually. That will allow it to continue increasing its already attractive 5.4%-yielding dividend by at least 5% per year.
Add those two up, and Brookfield could produce total annual returns in the mid-teens. That makes it a very attractive investment opportunity.
