Brookfield Renewable (BEP 0.90%)(BEPC 1.29%) is a large and diversified producer of clean energy. That puts it in a sweet spot when it comes to artificial intelligence (AI), which is a power-hungry technology. Here's why you may want to buy this high-yielding stock to capitalize on the AI revolution.
What does Brookfield Renewable do?
Brookfield Renewable is basically an independent power producer that sells power under long-term contracts. This creates reliable cash flows that the company uses to pay dividends to investors and to expand its business. The company takes an active approach to its portfolio, building, buying, and selling assets regularly. Proceeds from asset sales are generally used to purchase new assets.
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The power portfolio is highly diversified with a focus on both clean and renewable energy sources. For starters, it has operations in North America, South America, Europe, and Asia. Roughly 75% of the company's revenue comes from developed markets, with the remaining 25% from emerging markets. With regard to power production, the company operates in the hydroelectric, solar, wind, battery, and nuclear power sectors. It is highly diversified by both geography and technology.
There is one opaque part of the story that investors need to understand. Large Canadian asset manager Brookfield Asset Management (BAM 3.47%) operates Brookfield Renewable, using it as a source of capital to fund Brookfield Asset Management's larger clean energy investment plans. You are effectively investing alongside Brookfield Asset Management if you buy Brookfield Renewable.
And there are actually two ways to buy Brookfield Renewable, one with a partnership structure that has a 5.1% yield and another with a corporate structure that has a yield of 3.7%. The two entities represent the same business and pay the same nominal dividend; the difference in yield stems from higher demand for the corporate version. That demand is why Brookfield Asset Management introduced the corporate class. Notably, institutional investors are often barred from owning partnerships. Small dividend investors, with no such restrictions, will probably prefer the partnership.
The opportunity ahead for Brookfield Renewable
The big story for investors is that Brookfield Renewable is pretty much a one-stop shop for clean energy. That, however, is the same story that will be attractive to Brookfield Renewable's customers. This diversified clean energy business can help provide power in various forms virtually anywhere in the world where a company wants to build a data center, AI-focused or not.
NYSE: BEP
Key Data Points
Data centers are where AI lives, given that AI is just a fancy computer program. Ensuring reliable power is vital to keeping AI functioning as expected. AI companies want to work with reliable power partners. Which is why it is notable that Microsoft and Alphabet's Google have both partnered with Brookfield Renewable to help them build out their AI businesses. Microsoft has a deal for 10.5 gigawatts of power, with Google's deal coming in at 3 gigawatts, largely focused on hydroelectric power.
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Key Data Points
These two deals are likely to be just the start. Indeed, Brookfield Renewable has been working to create similar deals with other tech companies. And since the power contracts are long-term, the revenue generated by its AI-related deals increase Brookfield Renewable's ability to pay dividends to investors.
The target to watch is 5% to 9%
Brookfield Renewable is an income investment. The lofty yields offered by the two different versions of the business are a clear indication of that. However, there's a growth component as well, as management is targeting 5% to 9% annual dividend growth. With management expecting to deploy as much as $10 billion in growth capital during the next five years, it seems highly likely that Brookfield Renewable's dividend will, indeed, keep growing as it helps to support the build-out of the AI backbone.
