Brookfield Renewable (BEPC 0.51%)(BEP 1.08%) has a terrific track record of growing value for its shareholders. One evidence of this is its dividend. The global renewable energy producer has grown its payout at a 6% compound annual rate since 2001.
A big factor powering Brookfield's ability to grow its dividend is its brilliant capital recycling strategy. The renewable energy company routinely seeks to capitalize on the value disconnect between the assets it owns and higher-returning new investment opportunities. With that disconnect widening in recent months, the company has ramped up its activities. That puts Brookfield in an even stronger position to grow its more than 5%-yielding dividend in the future.
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The growing divergence between fundamentals and value
In his first-quarter letter to shareholders, CEO Connor Teskey wrote about a compelling investment opportunity Brookfield is seeing in the market today. He commented:
Public market valuations for renewable energy companies have trended significantly lower in recent months. At the same time, fundamentals for energy demand are strong and meeting this demand requires significant capital. This is driving incumbent utilities and traditional energy players to refocus on their core businesses or seek scale capital partnerships or solutions, creating significant opportunities for those with access to capital, carve out capabilities and development expertise to acquire renewable platforms and assets for value.
The company recently capitalized on one such opportunity. During Q1, it agreed to buy National Grid Renewables (NGR) from utility National Grid. NGR is a fully integrated U.S. onshore renewable power operator and developer. It has 3.9 gigawatts (GWs) of operating capacity and assets under construction, another 1 GW of construction-ready projects, and a 30 GW development pipeline (primarily utility-scale solar and battery storage systems).
NYSE: BEPC
Key Data Points
Teskey commented:
Similar to the Deriva Energy (formerly Duke Energy Renewables) transaction we executed two years ago, NGR is a sizable acquisition that involves a corporate carve-out with a large, unregulated operating portfolio, significant near-term operational improvement opportunities, and an attractive growth pipeline of advanced onshore assets. We were able to acquire the platform for value given our access to scale capital, ability to execute a complex carve out, and our operating and development capabilities.
Brookfield also recently completed its privatization of Neoen. That deal demonstrated its ability to capitalize on the present market by acquiring a large-scale business on a value basis. It set the company up to drive additional value from the investment as it accelerates Neoen's development activities and implements its capital recycling strategy in that business.
Harvesting value in the private market
While demand for renewable energy investments by public market investors is down right now, "we continue to see robust demand from private investors for our derisked operating assets and platforms with advanced projects and highly executable growth opportunities," wrote Teskey. That enabled the company to secure several high-value asset sales. It closed the first phase of its India portfolio sale and its stake in First Hydro, crystallizing a 20% return and almost three times its invested capital. It also agreed to sell another 25% interest in its Shepherds Flat wind farm at nearly two times its invested capital.
Teskey noted that the "market for asset recycling continues to be robust and our pipeline of potential asset sales is large." The company has a growing portfolio of attractive assets it can sell in the future, giving it additional capital to recycle into new investment opportunities, including acquisitions and development projects.
The company's strategy of selling assets into the high-value private market and buying assets for value in the public market should enable it to create a lot of value for its investors. It positions Brookfield to grow its earnings faster, which should allow it to continue increasing its dividend at a healthy pace.
This wise strategy should continue paying dividends
Brookfield Renewable has steadily grown its dividend over the years by wisely investing capital into new renewable energy assets. It has enhanced its ability to increase its payout by cashing in on the value of its more mature assets and recycling that capital into higher-returning new investment opportunities. With the value gap widening in recent months, the company is ramping up its activities. That positions it to create more value for shareholders in the future, making it a great income stock to buy and hold for the long haul.
