Brookfield Renewable (BEP 2.06%) (BEPC) is an energy company focused on clean energy. The business has been laying the groundwork for growth in recent years and now has an attractive and diversified platform that should position it well no matter which low carbon technology takes center stage. But investors that are looking to position themselves for 2025 need to understand that Brookfield Renewable's leadership is thinking long term.
What does Brookfield Renewable do?
Brookfield Renewable is actually a little complex, involving three different stock tickers. The first one you need to know about is a totally different company, Brookfield Asset Management (BAM 0.12%). Brookfield Asset Management is a large Canadian asset manager that has a long history of investing in infrastructure assets on a global scale. It created Brookfield Renewable as a way to raise capital for the clean energy investments it was making. So, at a fundamental level, Brookfield Renewable is a way for investors to invest alongside Brookfield Asset Management.
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That said, there are two ways to buy Brookfield Renewable. There is a partnership class and a regular corporate share class. The partnership was the first one created and it appealed mostly to small investors. The corporate share class was created to broaden the appeal to larger investors, such as pension funds, which may not have been allowed to own partnerships. The partnership and corporate classes represent the exact same entity and have the exact same dividend payment. However, the corporate class is more popular and, thus, trades with a lower yield. To put some numbers on that, Brookfield Renewable Partners has a distribution yield of 6.1% while Brookfield Renewable Corporation has a dividend yield of 5%.
As for the underlying business, Brookfield Renewable provides exposure to the solar, wind, hydroelectric, storage, and nuclear industries. And its portfolio is spread across the globe, with investments in North America, South America, Europe, and Asia. It is pretty close to a one-stop-shop in the renewable power sector.
Some caveats to consider with Brookfield Renewable
The first big thing that investors need to understand with Brookfield Renewable is that it is operated like an asset management business. It usually buys assets when they are cheap, invests in them to improve performance and increase value, and then, if a good price can be had, it sells assets. This is the influence of Brookfield Asset Management at play. However, Brookfield Renewable is still a business and investors need to think about its future prospects in the energy sector, too.
Only Brookfield Renewable itself isn't thinking about 2025 specifically, as some investors might be doing now that a new year is upon Wall Street. It is thinking long term and has a plan that extends well into the future. For example, in recent years Brookfield Renewable has used its foundation in hydroelectric power to expand in solar and wind. Seeing opportunity in storage it started to venture into that space, as well. And more recently it believed that nuclear power has long-term appeal as well and put money to work in that sector. Brookfield Renewable also invests in bio-fuels, a clean energy technology that is starting to gain traction.
You get the idea, Brookfield Renewable is evolving as the clean energy sector evolves. But there's another aspect here, too. The business has begun to include more development projects. So instead of just buying assets, it is increasingly building them from the ground up.
The overall results here are impressive. Its operating capacity has expanded 2x since 2020, with development capacity up 9x. In fact, acquisitions made in recent years have notably increased the company's pipeline for future growth. Its ground up construction efforts are expected to increase in 2025 over 2024. And then its construction efforts will continue to expand in 2026 and 2027. All of that growth is coming from projects that are fairly well advanced. Additional projects that are only now on the drawing board would keep construction plans elevated until at least 2030! Management believes these investments will add $350 million to funds from operations (FFO).
To be fair, that's just one lever for growth at Brookfield Renewable, which will also benefit from contractual price increases at existing assets and acquisitions, though acquisitions tend to be lumpy and are impossible to predict. That said, the ground up construction growth that's happening simply wouldn't have been possible a few years ago. It was a specific tactic to create an additional avenue for long-term growth that could form a foundation even when selling debt and equity to fund acquisitions isn't desirable given the state of the capital markets.
Brookfield Renewable is out of favor
This is notable because Brookfield Renewable has been in the Wall Street dog house of late. But that just makes the strategic moves all the more interesting because it builds a platform for growth in 2025, but also for growth in the years beyond 2025. If you are looking for a high yield investment in the renewable power sector, Brookfield Renewable should be on your short list. The biggest attraction right now, however, is really the way in which this business is positioning itself to thrive no matter what happens in the stock market in 2025.
