Brookfield Renewable (BEPC 0.87%)(BEP +0.00%) is one of the world's largest publicly traded renewable power platforms. Its global operations encompass hydroelectric, wind, solar, and energy storage. It also has an emerging sustainable solutions platform.
Here's a look at how the renewable energy stock has performed compared to the S&P 500 over the last five years.
Image source: Getty Images.
Brookfield's five-year returns
Brookfield Renewable has been a surprisingly poor performer over the last five years:
|
One-year |
Three-year |
Five-year | |
|---|---|---|---|
|
Brookfield Renewable |
26.8% |
23% |
-18% |
|
Brookfield Renewable (total return with reinvested dividends) |
31.6% |
40.4% |
-0.1% |
|
S&P 500 |
13.4% |
68.4% |
87.1% |
Data source: Ycharts.
Shares of the renewable energy producer have lost value over the past five years, even when adding in its lucrative dividend (3.7% current yield). It has also underperformed the market over the last three years. However, it has started to regain some momentum over the past year, as its returns have surpassed those of the S&P 500.
NYSE: BEPC
Key Data Points
What has contributed to Brookfield's five-year performance?
While Brookfield Renewable's share price has fallen over the past five years, its business has performed well. In 2020, the company generated $807 million or $1.32 per share of funds from operations (FFO). This year, the company is on track to produce nearly $1.3 billion or $1.91 per share of FFO. That implies compound annual growth rates of 11% and 8%, respectively. Brookfield has also increased its dividend payment from $1.16 per share to $1.49 per share, a 6% compound annual growth rate.
Given those results, the culprit behind the company's poor performance seems to be related to its valuation. Five years ago, Brookfield traded at around $49 per share or about 37 times FFO. Today, it trades at roughly $40 a share, or almost 21 times FFO. Like many stocks, the company was trading at a relatively high valuation in the aftermath of the pandemic.
However, Brookfield trades at a much more reasonable valuation these days, especially given the growth it sees ahead. Surging demand for renewable energy due to AI data centers and other catalysts helps power the company's forecast that it can deliver more than 10% annual FFO per share growth through 2030. That easily supports its plans to increase its dividend within its 5% to 9% yearly target range.
Valuation matters
Brookfield Renewable fetched a premium valuation five years ago. As a result, shares have significantly underperformed the S&P 500 as the company didn't grow its earnings fast enough to justify that value.
However, it trades at a much lower valuation today. With its earnings-per-share growth rate poised to accelerate, it could produce much more powerful total returns over the next five years.
