The energy sector is undergoing a huge transition. It switches fuel sources from carbon-based fossil fuels to lower carbon alternatives. It will take decades and trillions of dollars to complete this transition.
Few companies are better positioned to benefit from the decarbonization megatrend Brookfield Renewable (NYSE: BEPC)(NYSE:BEP). The globally diversified platform of renewable energy and sustainable solutions is making it is the partner of choice for companies looking to decarbonize their operations. These catalysts should enable robust growth and total returns for the company’s investors, making this the ultimate solution energy supply to buy straight away.
A solid basic return
Brookfield Renewable is one of the largest publicly traded companies in the world renewable energy and companies that provide solutions for decarbonizing the economy. It operates a globally diversified portfolio of hydro, wind, solar and renewable solutions. It generates terribly stable cash flow by selling renewable energy to customers under long-term power purchase agreements (PPAs).
The company pays a substantial percentage of its fixed cash flow through dividends to investors. That payout currently yields 4.5%, more than threefold the S&P500‘s dividend yield (1.3%). At that rate, Brookfield Renewable can turn a $1,000 investment into $45 in annual dividend income. That’s a solid basic return.
Multiple growth catalysts
While Brookfield Renewable’s high-yield dividend has broad appeal, especially among income-oriented investors, it’s only part of the story. The company also offers strong growth potential.
Inflation escalators in Brookfield’s existing PPAs should grow funds from operations (FFO) by approximately 2% to 3% annually through at least 2028. Additionally, the company believes it can add another 2% to 4% annually to its FFO per share through margin improvement activities, such as providing support services to existing customers . Furthermore, the company believes its massive development pipeline will add another 3% to 5% to its bottom line every year.
The company has recently significantly improved its development profile signing a five-year development deal with tech titan Microsoft. Brookfield will supply more than 10.5 gigawatts (GW) of new renewable energy capacity in the US and Europe to Microsoft from 2026 to 2030. That represents the largest business PPA deal ever (nearly eight times larger than the previous record). The deal extends their strong partnership (Microsoft already has PPAs covering almost 1 GW of capacity). The partners can expand that agreement other carbon-free technologies that go beyond wind and solar and add additional regions to the mix, including Asia Pacific, India and Latin America. Brookfield’s unparalleled scale and diversification made this deal possible.
Brookfield also expects to remain an active buyer. The company believes M&A activity combined with its strong organic growth rate will drive annual FFO growth of more than 10% per share through 2028. Recently, the company agreed to invest $500 million in a controlling stake in Indian renewable energy developer Leap Green Energy. Last year, the company agreed to invest a record $2 billion in several deals, including nuclear services company Westinghouse and Duke Energy’s commercial renewable energy business.
Brookfield Renewable’s fast-growing revenues should give the company the strength to grow its earnings already attractive dividend with 5% to 9% per year. The company has increased its payout by at least 5% annually for 13 years straight away year.
Strong total return potential
Brookfield’s combination of dividend income and earnings growth should deliver strong returns in the coming years. With a base yield of 4.5% (and growing) from dividend income and annual earnings growth of more than 10%, Brookfield could generate total annual returns in the mid-teens. That’s a robust return. It could allow investors to double their $1,000 investment the next five years.
Should You Invest $1,000 in Brookfield Renewable Now?
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Matt DiLallo holds positions at Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool holds positions in and recommends Brookfield Renewable and Microsoft. The Motley Fool recommends Brookfield Renewable Partners and recommends the following options: long January 2026 $395 calls at Microsoft and short January 2026 $405 calls at Microsoft. The Motley Fool has a disclosure policy.
The Ultimate Energy Stock You Can Buy Right Now With $1,000 was originally published by The Motley Fool
