Brookfield Renewable (BEP -0.26%) (BEPC -0.70%) has been a fantastic growth stock over the years. The leading global producer of renewable energy has delivered 12% compound annual growth in funds from operations (FFO) per share since 2016. Its rapidly increasing earnings have helped power 6% compound annual dividend increases over the last two decades.
The renewable energy company has highly visible growth prospects, much of which it has already secured. Because of that, it could produce powerful total returns over the next 10 years.
A quartet of growth drivers
Brookfield's core business is generating renewable energy. It sells most of that power to utilities and large corporate buyers under long-term power purchase agreements (PPAs) -- 90% of its capacity with a weighted average remaining term of 13 years. Roughly 70% of those agreements link revenue with inflation. Because of that, the company generates very stable and steadily rising cash flow. It estimates its inflation escalation clauses will power 2% to 3% annual growth in FFO per share.
The company expects to generate another 2% to 4% annual growth in FFO per share through margin enhancements. One opportunity is locking in higher power rates as legacy PPAs expire. Over the next five years, the company believes this recontracting alone can add about 2% to its FFO per share each year.
It is also investing heavily in expansion. The company plans to deliver 10 gigawatts (GW) of additional renewable-energy generating capacity annually for several years. It has a massive pipeline to support this increase, including 65 GW of projects in advanced stages and over 200 GW of opportunities.
The company is seeing robust demand for renewable power. For example, it recently signed a five-year agreement to develop 10.5 GW of power for Microsoft, which it will deliver between 2026 and 2030. Development projects should add another 4% to 6% to its FFO per share each year.
Lastly, Brookfield Renewable has an excellent record of completing accretive mergers and acquisitions (M&A). The company and its partners have deployed $30 billion of capital into M&A over the last five years, and they recently agreed to buy French renewable power developer Neoen in a $10 billion deal. Given that its current M&A pipeline is around $100 billion, it should have plenty of opportunities to enhance its growth via acquisitions.
Supercharge total return potential
Brookfield's organic drivers alone should power 8% to 13% extra in annual FFO per share through at least 2029. That growth is highly visible and secured. Meanwhile, given its long-term contracts, recontracting potential, and development pipeline, it has increasing visibility into its secured growth through 2034.
Add in accretive M&A, and Brookfield is growing confident that it can deliver a 10%-plus annual increase in FFO per share for the next decade.
That should easily support its plan to increase its more than 4%-yielding dividend by 5% to 9% annually. The company has raised its payout by at least 5% for the last 13 consecutive years.
With its earnings growing by more than 10% annually and its dividend yield above 4%, Brookfield Renewable could generate an average annual total return of 15% or more. At that rate, it could turn a $1,000 investment into over $4,000 by 2034, good for a more than 300% total return.
Powerful return potential
Brookfield Renewable has increasing confidence in its ability to grow its business rapidly over the coming decade. That should give it plenty of power to continue increasing its high-yielding dividend. Those catalysts drive the view that the company could generate robust total returns over the next decade, making it a great stock to buy right now.
