Brookfield Renewable(NYSE: BEP)(NYSE: BEPC) has an exceptional record of growing value for its investors. The leading global renewable energy producer has grown its funds from operations (FFO) at a 12% compound annual rate since 2016. Meanwhile, it has delivered 6% compound annual growth in its dividends per share since 2001. That has helped power an 11.3% average annual total return over the last 10 years.
The company could produce an even more powerful total return in the future. Here are three reasons investors should back up the truck and buy the renewable energy stock like there's no tomorrow right now.
A powerful passive income stream
Brookfield Infrastructure's attractive and growing dividend is a significant part of its value proposition. The company currently offers a dividend yield above 4.5%. That's several times higher than the S&P 500's sub-1.5% dividend yield.
That high-yielding dividend is on a very sustainable foundation. Brookfield generates very stable cash flow, with 90% coming from long-term, fixed-rate power purchase agreements (PPAs). The company pays a conservative portion of its stable cash flow in dividends, with 74% of its FFO in the first half of this year. That provides it with a cushion while allowing it to retain cash for other uses. Brookfield also has a strong investment-grade balance sheet with lots of liquidity, which further enhances its financial flexibility.
The company expects to grow its dividend by 5% to 9% annually. It has delivered at least 5% annual dividend growth for 13 straight years.
A high-powered growth profile
Brookfield Renewable can easily support its dividend growth plan. The company has highly visible and secured growth through 2029. It also has increasing visibility into its secured growth through 2034. It expects to deliver 10%-plus annual FFO per share growth during that timeframe.
Four factors power that view:
- Inflation escalation: About 70% of Brookfield's PPAs index revenue to inflation. That drives the company's expectation that inflation escalation will add 2% to 3% to its FFO per share each year.
- Margin enhancement: Brookfield expects to lock in higher market prices as legacy PPAs expire. It has 6,000 gigawatt (GW) hours of capacity available for recontracting over the next five years, which could add up to $100 million in additional FFO, or about 2%, to its tally each year. Add in other margin enhancement activities like providing ancillary services, and this catalyst could boost its FFO per share by 2% to 4% annually.
- Development pipeline: The company has a massive development pipeline, with over 200 GWs of projects in various stages. It expects to deliver an average of 10 GW of new capacity annually through the end of the decade. Those investments should increase its FFO per share by 4% to 6% per year.
- M&A activities: Brookfield has an excellent record of making accretive acquisitions. It routinelyrecycles capital, selling mature assets to fund higher-returning new investments -- for example, recycling Saeta Yield and Hydro One into Neoen. M&A activities can further enhance its FFO per share growth rate.
A screaming bargain
Brookfield's stock price doesn'tcurrently reflect its excellent record of growing shareholder value. Shares are down nearly 50% from the peak of a few years ago. That slump has come even though the company has continued growing briskly. It trades at a very attractive valuation these days.
The company is on track to generate about $2.00 of FFO per share this year. With a share price of $31 for the corporation (BEPC) and $26 for the economically equivalent limited partnership (BEP), Brookfield trades at a mid-teens multiple of its FFO. That's dirt cheap in a market where the S&P 500 trades at more than 24 times earnings.
Supercharged total return potential
Brookfield Renewable is one of the more compelling investment opportunities these days. The renewable energy producer pays a very bankable dividend that yields more than 4.5%.It expectsto continue growing that payout by at least a 5% annual rate. Meanwhile, it has visible and secured earnings growth potential of more than 10% annually for the next several years. On top of that, it trades at a discounted valuation. Add it all up, and Brookfield Renewable could easily generate total annual returns in the mid-teens in the coming years. That's why investors should buy this stock like there's no tomorrow.
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Matt DiLallo has positions in Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
