Brookfield Renewable(NYSE: BEPC)(NYSE: BEP) is a global leader in renewable energy. It sells the power produced by its hydroelectric, wind, and solar energy assets under long-term contracts to utilities and large corporate buyers. Those agreements supply the company with predictable cash flow to support its nearly 5%-yielding dividend.
The company has steadily increased its high-yielding dividend by growing its clean energy business. In addition to boosting its renewable energy capacity, Brookfield has leveraged its expertise to expand into developing other sustainable solutions. It recently added another new growth driver to its portfolio that could provide its growth engine with even more fuel.
Adding another sustainable investment
Brookfield Renewable has been quietly building a growing portfolio of sustainable-solutions businesses. Its operational capabilities include carbon capture and storage (CCS), biofuels production, recycling, and global nuclear services.
The company and its partners are investing to grow those lines of business and build a solar-panel manufacturing platform. These investments are helping diversify its revenue and add new growth platforms it can scale in the future.
The company funds these endeavors through its investments in the Brookfield Global Transition Fund (BGTF) strategy, which its parent, Brookfield Asset Management(NYSE: BAM), manages. The first fund, BGTF I, raised a record $15 billion. Brookfield Asset Management followed that up with a second fund, BGTF II, that had already raised over $10 billion in its first closing earlier this year.
Brookfield has been putting this capital to work as it finds compelling investment opportunities in the energy transition space. It recently agreed to invest more than $200 million into Infinium and its Project Roadrunner. In addition, Brookfield and its partners could invest up to another $850 million into other Infinium eFuels projects around the world.
Project Roadrunner is developing a next-generation sustainable aviation fuel (eSAF) that could reduce emissions by 90%, compared to conventional fuels. The company is making the investment (its first in the SAF sector) via BGTF I.
Infinium has already started commercializing Project Roadrunner. It signed an agreement with American Airlines, which will start buying the fuel produced by Project Roadrunner in 2026. That project could also produce eNaphtha (which companies can use in plastics manufacturing) and eDiesel (which could be used by the long-haul trucking sector).
High-powered growth ahead
Brookfield Renewable has a lot of embedded growth ahead. The company's existing renewable energy contracts feature inflation-driven rate-escalation clauses that should add 2% to 3% to its funds from operations (FFO) per share each year. Meanwhile, it sees margin enhancement activities, like providing ancillary services to existing customers, adding another 2% to 4% to its FFO per share each year.
On top of that, Brookfield Renewable has a vast development pipeline. It has a staggering 230 gigawatts (GW) of renewable energy projects in various stages of development. That drives its view that it can develop about 10 GW of new capacity each year for the next several years.
In addition, the company has an extensive pipeline of sustainable-solutions development projects funded by its investment in BGTF I and BGTF II. Projects include additional CCS, biofuels, recycling capacity, solar panel manufacturing, and now its investments in eSAF. The company expects its development pipeline will add another 3% to 5% per share each year to its FFO.
Finally, Brookfield expects to continue being active in mergers and acquisitions (M&A). The company and its partners recently agreed to acquire a majority stake in leading European renewable energy company Neoen. They expect to close that majority interest and then offer to purchase the rest of the company from its other investors. Brookfield sees accretive M&A helping push its FFO growth rate above 10% annually.
The company's high-powered growth will give it plenty of fuel to increase its dividend. It has grown its payout at a 6% compound annual rate over the last 20 years. Brookfield is targeting 5% to 9% annual dividend growth over the long term.
Powerful total-return potential
Brookfield Renewable continues to add fuel to its sustainable-growth engine, partly thanks to its relationship with Brookfield Asset Management. Its parent continues to open the door to new growth areas through its BGTF strategy, which is adding to the company's already robust growth outlook.
This growth, plus the company's steadily rising high-yielding dividend, could give the company the power to produce strong total returns in the coming years. That makes it an excellent stock to buy for its income and upside potential.
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Matt DiLallo has positions in Brookfield Asset Management, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Brookfield Asset Management and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
