Energy demand is accelerating, especially for lower-carbon energy. The world needs more power to support an increasingly digital economy. Data centers, especially those supporting AI applications, require a tremendous amount of power. They're on pace to go from consuming 1%-2% of global electricity to 3%-4% by 2030. That would fuel significant demand growth for natural gas, renewable energy, and nuclear power.
Brookfield Renewable (BEPC 1.52%)(BEP 1.46%) is a global leader in producing renewable energy. In addition, it has investments in nuclear energy services through its stake in Westinghouse Electric and a growing sustainable solutions business, which includes investments in carbon capture and storage. These catalysts have the company on track to continue growing briskly in 2025 and beyond. Add in everything else it has to offer, and Brookfield Renewable is my top energy stock pick for the New Year.
NYSE: BEPC
Key Data Points
A leader in lower carbon energy
Brookfield Renewable operates one of the world's largest publicly traded platforms of renewable power assets. It has 37 gigawatts (GW) of renewable energy capacity around the world that helps offset 250 million tonnes of carbon annually. In addition to producing renewable energy, its sustainable solutions platform has investments in carbon capture, biofuels production, advanced recycling, global nuclear services, and solar panel manufacturing.
The company sells most of the power it produces and the sustainable solutions it provides under long-term, fixed-rate contracts that generate very stable cash flow. It has contracts in place for 90% of its generation with an average duration of 13 years. Meanwhile, those agreements index 70% of its revenue to inflation.
Brookfield distributes a meaningful percentage of its stable cash flow to investors through dividends. It currently has a dividend yield hovering around 5%. The company has grown that payout at a 6% annual rate over the past two decades.
Highly secured growth
Brookfield Renewable believes it can grow its funds from operations (FFO) per share at a more than 10% annual rate over the next decade. That easily supports its plan to increase its dividend by 5% to 9% per year over the long term.
It has high visibility into its growth over the next several years. For example, inflation escalation clauses in many of its existing power contracts will add about 2% to 3% to its FFO per share each year, assuming a modest inflation rate. Meanwhile, with market prices for power growing faster than inflation, Brookfield expects to lock in higher power rates as legacy agreements expire. This catalyst could add another 2% to 4% to its FFO per share each year over the next five years. That's about 4% to 7% annual organic growth from its existing portfolio without investing incremental capital.
On top of that, Brookfield has over 200 GW of renewable energy projects in its backlog, with 65 GW in its advanced-stage pipeline. The company expects to deliver 8.4 GW of projects this year, up from 7 GW last year, and should scale to around 10 GW annually in the future. These development projects should add about 4% to 6% to its FFO per share each year. The company has secured significant contracts with large corporate power buyers to support its development pipeline. For example, it has a framework agreement with Microsoft to deliver 10.5 GW of capacity in the 2026-2030 timeframe to support the tech titan's growing cloud and AI operations.
Finally, the company has an excellent record of making accretive acquisitions that increase its FFO per share. Brookfield and its partners most recently agreed to buy leading European renewable energy developer Neoen in a two-phased deal valued at $10 billion that should close this year. The company currently has a robust pipeline of around $100 billion in additional M&A opportunities under evaluation. Future deals will further scale and diversify its platform while enhancing its returns and long-term growth prospects.
The company has a strong investment-grade balance sheet with lots of liquidity to fund new investments. It routinely replenishes its liquidity by recycling capital. It has generated about $2.3 billion in cash from asset sales this year and had several other transactions in the pipeline, which will help fund its future growth.
Strong total return potential
Brookfield Renewable's large-scale portfolio of renewable energy assets and sustainable solutions generates lots of stable cash flow. That gives it the power to pay a rock-solid dividend that currently yields 5%. Meanwhile, the company has the fuel to grow its FFO per share by a more than 10% annual rate for the foreseeable future. Add it up, and Brookfield could deliver total annualized returns in the mid-teens. That robust return potential from such a low-risk company is why Brookfield Renewable stands out as my top energy stock to buy in 2025.
