Brookfield Renewable (BEPC +0.00%)(BEP +1.02%) has done a fantastic job paying dividends over the years. The renewable energy giant has increased its payout (which currently yields around 5%) by at least 5% annually for 13 straight years.
Several factors have helped power this steady rise. A big driver is its smart capital recycling strategy. The global renewable energy company will acquire assets on a value basis, operate them and enhance their value, and eventually sell them to recycle the capital into higher-returning new investments.
Brookfield Renewable is in the process of showcasing the value of this strategy, which should provide it with even more ability to grow its high-yielding dividend.
NYSE: BEPC
Key Data Points
Cashing in on Saeta Yield
Brookfield routinely buys renewable energy assets based on their upside potential from operational improvements or development projects.
It capitalized on one such opportunity in 2018. The company had acquired a controlling stake in TerraForm Power, which it used to buy Saeta Yield from a Spanish construction group. That company operated a one gigawatt (GW) portfolio of wind and solar assets in Europe. TerraForm paid about 1 billion euros (roughly $1.2 billion at the time) for the company. Brookfield would eventually acquire full control of TerraForm and thus Saeta Yield.
Brookfield is now looking to cash in on the value of Saeta, which it puts at about 1.7 billion euros ($1.8 billion). Saeta owns 28 wind farms, 10 photovoltaic parks, and seven solar thermal plants in Spain and Portugal.
Brookfield plans to sell all but the thermal plants. That deal, which Reuters recently reported is down to four bidders, would supply it with cash to recycle into new investment opportunities.
Securing a high-powered growth opportunity
Brookfield has lots of opportunities to reinvest those proceeds. One that it's working to capture is Neoen, a French renewable energy development company.
Last month, Brookfield and its partners agreed to buy a majority stake in the company from a block of existing shareholders. It will acquire 53.1% of the company from those investors and then make an all-cash mandatory tender offer to buy out the remaining investors.
The deal values Neoen at $6.5 billion. The company has 8.3 GW of operating and under-construction solar, wind, and energy-storage facilities in France, Finland, Mexico, and Australia.
It also has about 20 GW of advanced development projects in its pipeline across Australia, France, and Nordic countries. That pipeline would add to Brookfield's already massive 157 GW of projects around the world. Buying Neoen is a unique opportunity to accelerate its ability to develop renewable energy projects to support the clean energy transition and surging demand from AI and cloud computing.
A supercharged growth profile
Brookfield Renewable's base business can generate healthy growth in the coming years. The company estimates that inflation escalations in its existing power-purchase agreements and margin enhancement activities (e.g., providing ancillary services to existing customers) will increase its funds from operations (FFO) by 4% to 7% per share through 2028.
Meanwhile, internally funded development projects will add another 3% to 5% to its bottom line each year. Those catalysts alone will give it plenty of power to achieve the low end of its annual dividend-growth target range of 5% to 9%.
The company believes mergers and acquisitions can supercharge its growth. It expects to deliver 10%-plus annual increases in FFO per share through 2028. While Brookfield will issue new stock to fund some deals, it primarily relies on capital recycling.
That strategy makes it less reliant on the volatile capital markets to fund deals, and it enhances its per-share increases. The upcoming swap of the stable Saeta Yield for the fast-growing Neoen is the latest example of this smart strategy in action.
A high-powered dividend growth stock
Brookfield Renewable isn't your typical high-yield dividend stock. The leading operator in global renewable energy is also growing fast. A big catalyst is its ability to supercharge that by making accretive acquisitions funded by its capital recycling strategy.
The plan to recycle Saeta Yield into Neoen should help enhance earnings in the coming years. That should put Brookfield in an even stronger position to continue increasing its dividend and generate high-powered total returns.
