Renewable energy stocks are not as resilient as other energy stocks. Even though many policies are in place to produce renewable energy, the generation capacity is just a drop in the ocean compared to consumption. However, there is no denying that renewable is the future of energy. And as the 2030 emission deadline nears, many countries are accelerating work on their renewable power projects. Smart investors know that patience will pay off in green space if they are invested in the right stock.
As one of the largest renewable energy companies, Brookfield Renewable Partners (TSX:BEP.UN) has what it takes to thrive through the transition while giving positive returns to shareholders.
Three things about Brookfield Renewable Partners every smart investor knows
Dividend-paying business model
Brookfield Renewable Partners is a dividend stock that has grown its dividend in 10 out of the last 13 years. Not many renewable energy companies grow their dividends. However, Brookfield has a disciplined approach to developing and underwriting projects that makes it efficient. Every new project commissioned adds to the cash flow.
It generated US$1.09 billion in funds from operations (FFO) in 2023. It commissioned almost five gigawatts (GW) of new clean energy capacity, which is expected to add US$60 million to FFO annually. The company has 24 GW of capacity in the advanced stage, and it will add US$300 million to its FFO. It plans to commission seven GW of projects annually. These numbers show Brookfield’s disciplined approach towards new project developments.
Apart from developing new projects, Brookfield acquires and manages renewable energy projects. This combination of growing organically and through acquisitions has helped the company grow revenues and cash flows steadily. It has 155 GW of projects under development pipeline, hinting at the company’s ability to grow dividends for years as these projects come online.
Cloud computing and AI catalysts
Another catalyst smart investors know is that Brookfield Renewable Partners is eyeing cloud computing and artificial intelligence (AI) to boost growth. The energy company is not building AI capabilities. Instead, it is targeting companies building AI capabilities, offering them renewable energy solutions. Data centres consume a tremendous amount of energy. And with cloud computing and AI, their electricity consumption will only grow. (An AI data centre will consume 10 times more electricity than a non-AI data centre)
Reports estimate data centres to account for 10% of total electricity demand by 2030. To fulfill this electricity demand, you may need a generation capacity of the size of the current U.S. grid. These technology companies have 100% clean energy targets. It means they will invest heavily in renewable energy projects.
And there is also the trend of electrification of cars and industries that needs clean energy. What’s the use of buying an electric car if the electricity used for charging is fossil fuel powered?
Brookfield Renewable Partners currently supplies 30% of its contracted generation capacity (22 terawatt-hours per year) to corporate customers. It aims to double this to 44 terawatt-hours per year in the next four years, representing 45% of total contract volumes.
Brookfield Renewable Partners stock is down 40% from its peak
Brookfield Renewable Partners enjoys strong demand and structured development, generating sustainable cash flows. What smart investors look for next is balance sheet leverage. Most renewable energy companies slashed their dividends in 2023 to keep up with rising interest rates. However, Brookfield Renewable Partners increased its dividend by 5% in the last three years.
Brookfield Renewable Partners has US$2.8 billion in corporate borrowings against US$1.14 billion in cash reserves. The remaining US$27 billion of its debt is a recourse loan against the assets it financed. Almost 32% of its revenue goes towards interest payments. While Brookfield has significant debt, its growing cash flow and depreciation make the debt manageable.
Brookfield Renewable Partners stock fell 40% from its 2021 peak as the company slashed dividends. Moreover, rising interest rates in 2022 and 2023 put downward pressure on companies with leveraged balance sheets.
It is a good time to lock in a 6% yield that grows annually. While Brookfield’s dividends are exposed to economic uncertainty, they can give you incremental dividend income in the long term.
