Brookfield Renewable (BEP 1.83%)(BEPC +0.00%) is an exceptional dividend stock. The renewable power company has grown its payout at a 6% compound annual rate for the last 20 years. It currently offers a high-yielding payout (more than 4.5% dividend yield) that should continue rising at a healthy rate in the future.
Driving that view is the renewable energy company's robust growth outlook. Brookfield Renewable continues to add new power sources, which enhances its ability to grow briskly in the coming years.
NYSE: BEP
Key Data Points
Multiple growth drivers
Brookfield Renewable has a quartet of drivers that should power robust growth in its funds from operations (FFO) over the next several years. The company has three organic growth catalysts that provide highly visible and secured growth through at least 2029:
- Inflation escalators in its power purchase agreements (PPAs) will grow its FFO per share by 2% to 3% annually.
- Margin enhancement activities like securing higher market prices for its power as legacy PPAs expire will boost its bottom line by another 2% to 4% per year.
- Its massive development pipeline will add another 4% to 6% to its FFO per share each year.
Add it up, and Brookfield can organically grow its FFO per share by 8% to 13% annually through at least 2029, with increasing visibility through 2034 due to the size of its development pipeline.
On top of that, the company expects M&A activities to enhance its growth rate. This catalyst helps drive the company's view that it can grow its FFO per share by more than 10% annually over the next several years. Brookfield has secured several deals this year, including agreeing to buy a majority stake in French renewable energy producer and developer Neoen. That acquisition, along with its strong organic growth drivers, helps power its optimism that it can deliver 10%+ FFO per share growth in 2024.
Getting windier
Brookfield Renewable is now adding to its already robust growth profile by making another acquisition. The company is joining forces with its parent, Brookfield Asset Management, and other institutional investors to invest in several U.K. offshore wind farms operated by Orsted. The Brookfield partnership will acquire 12.45% minority stakes in four operational U.K. wind farms (Hornsea 1, Hornsea 2, Walney Extension, and Burbo Bank Extension) in a $2.3 billion deal (Brookfield Renewable will invest $570 million). The wind farms have the capacity to produce 3.5 gigawatts (GW) of power.
The transaction will allow Orsted to recycle capital into new investment opportunities. Meanwhile, it will enable Brookfield Renewable to partner with the world's largest and leading offshore wind player. The transaction will facilitate the company's continued expansion into the offshore wind sector, providing further diversification and growth potential. Brookfield believes offshore wind "will continue to be a critical part of the energy mix and to support the growing demand we see for clean energy" in the U.K., according to comments by CEO Connor Teskey.
The four wind energy assets generate stable cash flows backed by long-term inflation-linked contracts. Because of that, they should supply Brookfield with steady and growing cash flows to support its rising dividend.
The partnership with Orsted could yield future investment opportunities. The company currently operates more than 5 GW of offshore wind capacity and has another 5 GW under construction or development, including Hornsea 3 and 4. It could sell additional stakes in its offshore wind energy assets to Brookfield in the future to help fund its large development pipeline (7.7 GW of renewables and battery capacity under construction worldwide).
Another smart investment
Brookfield Renewable already has a robust growth outlook thanks to a trio of organic growth drivers. However, that isn't stopping the company from capitalizing on opportunities to enhance its growth profile, which it's doing by investing in four operating U.K. wind farms. The deal will bolster its ability to grow its cash flow and dividend in the future. That combination of income and growth makes Brookfield Renewable a terrific long-term investment.
