Brookfield Renewable (BEPC 0.09%) (BEP 0.19%) has underperformed the market this year. Shares have lost about 4% of their value compared to a nearly 19% gain by the S&P 500. Meanwhile, they're down 25% from their 52-week high.
The decline gives investors a great entry point into the renewable-energy giant. They can lock in a dividend yielding more than 5% that should grow at a healthy rate over the next several years, powered by robust earnings growth. That should give it the power to continue producing strong total returns over the longer term.
A steady value creator
Despite its slumping stock price, Brookfield Renewable is having another excellent year. Its funds from operations (FFO) were up by 7% per share in the third quarter, powered by its strong operations and newly completed development projects. Meanwhile, the company recently closed several acquisitions (X-Elio, Deriva Energy, and Westinghouse Electric). These deals will add significant incremental FFO starting in the current quarter. They put Brookfield in a position to "continue to deliver on our decade long track record of 10%+ FFO per unit annual growth," stated CEO Connor Teskey in the Q3 earnings release.
Brookfield's steady earnings growth has given it the power to routinely increase its dividend. This year marked its 12th straight year of increasing its dividend by at least 5%. That combination of rising income and earnings has helped fuel market-beating total returns for its investors over the years. Brookfield has delivered a 12.2% annualized total return over the last 10 years, outpacing the S&P 500's 11.8% annualized total return.
Powerful growth ahead
Brookfield's recently closed acquisitions give it a lot of momentum heading into 2024. Meanwhile, it has a couple more deals in the pipeline that could provide an additional boost in the coming quarters. It recently agreed to buy UK renewable-energy developer Banks Renewables in a $600 million deal that it expects to close by the end of this year. It's also working to close its acquisition of Australian utility Origin Energy. While the company has received regulatory approvals, it's awaiting a shareholder vote from Origin. The outcome of that vote isn't clear because a major Origin shareholder opposes the deal. If approved, that transaction would close early next year, further boosting its FFO.
Even without Origin, Brookfield is in a strong position to grow at a double-digit pace in 2024 and beyond. It should easily be able to replace Origin if that deal falls apart. Teskey wrote in his Q3 letter to investors:
We are also seeing an increasing number of opportunities to acquire scale portfolios and platforms, given the recent move in public market valuations, combined with the increasing need for capital across the sector. This environment plays to our strengths as we can invest at attractive risk-adjusted returns when others are pulling back.
Meanwhile, the company's organic-growth drivers remain robust. Brookfield highlighted them at its recent Investor Day:
Image source: Brookfield Renewable.
As that slide shows, a trio of organic drivers (inflation-linked rate increases, increased margins from higher power prices, and development projects) will drive 7% to 12% annual FFO per-share growth over the next five years. Add in acquisitions, and Brookfield expects to continue delivering double-digit annual FFO per-share growth. These drivers support its view that it can increase the dividend by 5% to 9% per year in the long term. With its payout already yielding more than 5%, Brookfield could easily deliver double-digit total returns in the coming years.
A great stock to buy for income and upside
Despite what its underperforming stock price might suggest, Brookfield Renewable is having another strong year. It's on track to continue its streak of double-digit FFO per-share growth. Meanwhile, it's in an excellent position to continue growing at a double-digit clip in the future. Add in its lower share price and high-yielding dividend, and it's doubtful investors will regret it if they buy shares this month.
