Brookfield Renewable (BEP -1.20%) (BEPC -0.84%) has become one of the largest producers of renewable energy in the world. It is constantly developing new renewable energy projects that, along with other organic drivers, drive steady revenue growth. In addition, the company regularly makes value-enhancing acquisitions.
The last power source is about to kick into high gear. The company recently closed several acquisitions and has several more needle-moving deals in the pipeline. They position renewable energy juggernaut to end the year on a high note and give it plenty of momentum heading into 2024.
That should give it more power to increase its dividend. Brookfield has grown its payout by at least 5% annually over the past ten years.
Steady as it goes
Brookfield Renewable’s revenue growth slowed in the third quarter. While its funds from operations (FFO) rose more than 4% year-over-year overall to $253 million, was flat on a per-share basis at $0.38. That lifted the year-to-date total to $840 million, or $1.29 per share, up nearly 7% on a per-share basis from last year.
The company benefited from the strong underlying performance of its globally diversified renewable energy portfolio. Brookfield benefits from increased inflation. Its contracts allow it to pass on inflation to customers by raising power prices in line with the level of inflation. Brookfield is also benefiting from its growth plan and recent acquisitions.
About to hit the gas
Brookfield recently closed several acquisitions and has several more deals in the pipeline that should close in the next few months. As a result, “we are adding significant additional FFO and are positioned to continue to maintain our long-standing track record of 10%+ FFO per unit annual growth,” CEO Connor Teskey said in the third-quarter earnings call.
The company has now completed its acquisition to buy out its partner’s 50% stake in X-Elio and buy Duke Energy‘c former renewable energy trading platform. Operating assets from these two investments will provide it with additional cash flow. Meanwhile, both have extensive development plans to drive growth in the coming years.
In addition, Brookfield expects to close its investment in nuclear energy service company Westinghouse Electric soon. It is also working to close its deal for the Australian utility Source energy. The company recently received permission from the Australian Competition and Consumer Commission to complete this deal, which still needs shareholder approval. While a major shareholder in Origin Energy continues to oppose the deal, Brookfield expects to close the transaction early next year.
Meanwhile, Brookfield and its partners recently agreed to acquire Banks Renewable for $600 million ($150 million of which it will finance). Banks is a leading UK renewable energy developer with a small operating portfolio and extensive development pipeline. Brookfield expects that deal to close by the end of this year.
The company has also agreed to partner with Axis Energy, a leading renewable energy developer in India. Brookfield and its partners will invest up to $850 million ($170 million of which they will finance) over the next three years to develop wind and solar projects.
Brookfield invested $1.5 billion of its capital in these transactions. It estimates that these investments will add $200 million to annual FFO, which will grow as it invests in expanding these businesses.
Improving its organic growth profile
Most of Brookfield’s acquisitions come with an extensive development process. They added to the company’s already huge backlog of future renewable energy projects. The company now has almost 150 gigawatt (GW) projects under development. That’s nearly one and a half times more than it was at this time last year. This lag will drive growth for years to come.
The company expects to bring nearly 5 GW of projects into service this year and 7 GW to 8 GW in 2024 and 2025. Newly completed projects will add about $70 million in annual FFO, while the 2024-2025 plan should increase its annual FFO by a combined $180 million dollar.
Strong growth ahead
While Brookfield Renewable’s growth slowed in the third quarter, a re-acceleration is on the way. The company expects to close several needle-moving acquisitions. In the meantime, it continues to expand its already extensive development pipeline, which will provide it with significant growth in the coming years.
These two factors support Brookfield’s forecast that it could grow FFO per share by more than 10% annually. This will allow it to continue growing its already attractive 5.4% dividend by at least 5% annually.
Add those two together and Brookfield could generate total annual returns in the mid-teens. This makes it a very attractive investment opportunity.
Matthew DiLallo holds 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 and Duke Energy. The Motley Fool has a disclosure policy.
