Brookfield Renewable (BEP -0.26%) (BEPC -0.70%) is a fairly complex entity, but it has positioned itself to benefit from a trend that is likely to last for decades. With a lofty yield and an increasingly diversified business, this clean energy leader has a very real chance of helping investors build million-dollar portfolios.
Here's why you might want to buy it today.
What does Brookfield Renewable do?
From a simplistic point of view, Brookfield Renewable invests in clean energy infrastructure. The world is in the early innings of a transition from dirtier fuels to cleaner ones that has resulted in a rapid increase in demand for power sources like solar and wind. However, hydroelectric power, nuclear, and energy storage are also increasingly important aspects of the global energy grid. Brookfield Renewable has exposure to all of these technologies. And that exposure spans North America, South America, Europe, and Asia.
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In many ways, Brookfield Renewable is a one-stop shop for investors who want to add exposure to clean energy to their portfolios. It is worth highlighting, too, that the business is backed by an investment-grade rated balance sheet. However, that's not the only thing backing Brookfield Renewable, since it is run by Brookfield Asset Management (BAM -1.32%). Essentially, buying Brookfield Renewable is a way to invest alongside Brookfield Asset Management, a large Canadian finance company that has an over 100-year history of investing in global infrastructure assets.
Which brings up another unique twist. There are two share classes, a partnership unit and a corporate share class. The partnership sports a yield of 6.1% while the corporate share class has a yield of 5%. They represent the exact same entity and have the exact same dividend; the yield difference is related to the fact that the corporate share class is more popular among investors. Many of the largest investors, like pension funds, can't own partnerships, which is why Brookfield Renewable created the corporate share class, as it allows access to more capital to support its long-term growth. The partnership also operates under a different tax structure which requires filing extra paperwork at tax time, which is a deterrent for some investors.
Brookfield Asset Management's goals are a bit different
There's another reason why investors need to be fully on board with Brookfield Renewable's relationship with Brookfield Asset Management: It changes the way the business is run. Although usually lumped in with utilities, since Brookfield Renewable owns electricity-generating assets, Brookfield Renewable's portfolio of assets is more actively managed than most utility portfolios. In practice that means Brookfield Renewable tends to buy clean energy assets when they are cheap, invest in them to improve performance and financial strength, and then happily sell them if it can get a good enough price.
That said, in recent years Brookfield Renewable has been working on building up its ability to build assets from the ground up, too. Such brownfield investments, as they are often called, give the company additional growth levers to pull. And, notably, means it can continue to invest even when capital markets aren't an attractive way to fund growth or when acquisitions just aren't that plentiful. Management expects ground-up construction to increase in each of the next three years.
So far, Brookfield Renewable has been a strong income selection. The disbursement has been increased at an annualized rate of 6% since 2001 while funds from operations (FFO) have expanded at a rate of around 12% since 2016. However, the business can be a little lumpy given the buying and selling of assets that take place.
The long-term future looks bright for Brookfield Renewable
All in, Brookfield Renewable is a financially strong clean energy business with a history of successfully navigating this growing niche of the global energy market. Over time it has expanded its reach into new technologies and regions and there's no reason to believe that its growth will suddenly stall out since the clean energy transition is an ongoing, and likely multidecade, event.
Given the lofty yield, investors should expect the dividend to provide a large portfolio of total return, but if you can afford to compound that income via dividend reinvestment, Brookfield Renewable could be a valuable part of a millionaire-making portfolio. And if you prefer to spend the income you collect, well, it can provide a growing passive income stream, which isn't a bad outcome, either.
