Brookfield Renewable: A Strong Growth and Income Opportunity

Brookfield Renewable is a unique investment opportunity in the renewable energy sector, known for providing investors with significant income and growth. With a current yield of around 4.5%, it stands out compared to the S&P 500 index, which offers a much lower 1.5% dividend yield. Alongside this attractive yield, Brookfield Renewable is experiencing impressive earnings growth at a double-digit rate.

Powerful growth

Recently, Brookfield Renewable reported its third-quarter results, showcasing substantial performance. The company generated $278 million in funds from operations (FFO), equating to $0.42 per share, which marks an increase of nearly 11% from the same time last year. This growth is driven by favorable power prices, successful development projects, and beneficial acquisitions.

The company’s traditional hydroelectric facilities continue to perform well, benefiting from strong demand for the clean energy they produce. In the latest quarter, Brookfield was able to secure advantageous contracts with utilities in the U.S., adding new cash flow streams.

In addition to maintaining its hydroelectric resources, Brookfield is making significant investments to expand its wind and solar energy capabilities. In the last quarter alone, the company commissioned 1.2 gigawatts (GW) of new renewable energy capacity and is set to complete a record 7 GW of projects by year-end, further diversifying its revenue sources.

Brookfield Renewable is also actively investing in new opportunities, with $2.3 billion deployed or committed during the third quarter. Of this amount, $500 million will be directly funded by the company itself. A notable investment includes acquiring a stake in operational offshore wind farms in the U.K. for $570 million, contributing to the company’s cash flow.

More growth ahead

Brookfield's management is optimistic about future growth. CEO Connor Teskey stated that the company expects to meet its growth target of over 10% FFO per unit for 2024 based on strong performance to date and anticipated future developments. The company's outlook includes benefits from rising power prices, the successful completion of various projects, and accretive investments.

Moreover, Brookfield has 6,000 gigawatt hours of hydroelectric capacity that will be up for recontracting in the next five years. With an improving market for clean energy, the company expects to secure higher-rate agreements for this capacity as older contracts end, thereby boosting future FFO.

The growth is further supported by Brookfield's plans to ramp up its development activities, with expectations to deliver 8.4 GW of new capacity next year and 9.1 GW in 2026. Collaborations with tech companies, including a significant agreement with Microsoft for over 10.5 GW of new renewable capacity during 2026-2030, will also drive expansion.

In addition to project development, Brookfield’s strategy of capital recycling is set to enhance its growth. The company plans to sell over $2.3 billion worth of assets this year, creating capital for higher-return investments. As it continues to seek new opportunities, there are currently over $100 billion worth of merger and acquisition potential in the pipeline.

High-powered total return potential

Brookfield Renewable aims for its FFO per share to increase annually by over 10% for the next decade. The combination of a strong development pipeline and heightened demand for clean energy underpins this forecast. Such earnings growth places Brookfield in a position to keep increasing its generous dividend, which it aspires to raise between 5% and 9% each year.

When considering all these factors, Brookfield Renewable appears equipped to deliver annual total returns in the mid-teens, establishing it as an excellent long-term investment opportunity.

Brookfield, Renewable, Investment