The energy sector is undergoing a massive transition. This involves replacing carbon-based fossil fuels with lower carbon alternatives. This transition will take decades and trillions of dollars.
Few companies are better positioned to capitalize on the decarbonization megatrend than Brookfield Renewable Energy (NYSE:BEPC)(NYSE:BEP). Its globally diversified platform of renewable energy and sustainable solutions is doing it is the partner of choice for companies seeking to decarbonize their operations. These catalysts are expected to generate robust growth and total returns for the company’s investors, making it the ultimate energy stock buy right away.
Solid core performance
Brookfield Renewable is one of the largest publicly traded companies in the world. renewable energy and decarbonization solutions companies. It operates a globally diversified portfolio of hydro, wind, solar and sustainable solutions. It generates very stable cash flow by selling renewable energy to customers under long-term power purchase agreements (PPAs).
The company pays out a substantial percentage of its regular cash flow to investors in the form of dividends. This payment currently earns 4.5%, more than triple THE S&P500the dividend yield (1.3%). Brookfield Renewable can turn a $1,000 investment into $45 in annual dividend income at this rate. This is a solid baseline performance.
Multiple catalysts for growth
While Brookfield Renewable’s high-yielding dividend is a big draw, especially among income-oriented investors, that’s only part of the story. The company also offers strong growth potential.
Inflation indexing factors in Brookfield’s existing PPAs are expected to increase its funds from operations (FFO) by around 2 to 3% per year until at least 2028. Additionally, the company estimates it can add an additional 2% to 4% to its FFO per share each year through margin enhancement activities, such as providing ancillary services to existing customers. . On top of that, the company estimates its massive development pipeline will add another 3-5% to its bottom line each year.
The company has recently significantly improved its development profile by signing of a five-year development agreement with the tech titan Microsoft. Brookfield will provide Microsoft with more than 10.5 gigawatts (GW) of new renewable energy capacity in the United States and Europe between 2026 and 2030. This represents the the biggest never signed a corporate PPA (almost eight times larger than the previous record). The deal expands their strong partnership (Microsoft already has PPAs covering nearly 1 GW of capacity). Partners may expand this agreement to include other carbon-free technologies beyond wind and solar and add additional regions to the mix, including Asia Pacific, India and Latin America. Brookfield’s unmatched scale and diversification made this transaction possible.
Brookfield also plans to continue to be an active acquirer. It estimates that mergers and acquisition activity will combine with its strong organic growth rate to generate annual FFO per share growth of more than 10% through 2028. It recently agreed to invest $500 million for a majority stake in Indian renewable energy developer Leap Green Energy. Last year, the company agreed to invest a record $2 billion in several deals, including nuclear services company Westinghouse and Duke Energy’s commercial renewable energy business.
Brookfield Renewable’s rapidly growing profits should give it the power to increase its Already attractive dividend of 5% to 9% per year. The company has increased its payouts by at least 5% per year for 13 right years.
Powerful total return potential
Brookfield’s combination of dividend income and earnings growth should help generate strong returns over the coming years. With a base yield of 4.5% (and growing) from dividend income and annual earnings growth of over 10%, Brookfield could generate total annual returns in the mid-teens. This is a solid return. This could allow investors to double their $1,000 investment from the following five years.
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Matt DiLallo holds positions in Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool holds positions and recommends Brookfield Renewable and Microsoft. The Motley Fool recommends Brookfield Renewable Partners and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
The Ultimate Energy Stock to Buy with $1,000 Right Now was originally published by The Motley Fool
