Investing a sizeable amount in blue-chip, dividend-paying growth stocks such as Brookfield Renewable (TSX:BEP.UN) can help you benefit from game-changing wealth over time. For instance, in the last 20 years, BEP stock has returned 239% to shareholders. However, after adjusting for dividends, these returns are much higher at 1,270%.
While Brookfield Renewable has outpaced the broader markets significantly over time, it currently trades 50% below all-time highs, allowing you to buy the dip. Investors are worried about the impact of macro headwinds such as rising interest rates and inflation on capital-intensive companies, including BEP.
Since the start of 2023, BEP stock has lost close to 28% in market value. It means a $5,000 investment in BEP at the start of 2023 would be worth just $4,561 today.
As past returns don’t matter much to future shareholders, let’s see if BEP stock should be part of your equity portfolio right now.
The bull case for Brookfield Renewable Partners stock
Despite a challenging macro environment, Brookfield Renewable generated record funds from operations (FFO) in 2023, driven by organic growth and acquisitions. It deployed a record amount of capital to accretive opportunities across key markets while increasing capacity and strengthening the balance sheet.
Brookfield Renewable has successfully established itself as a clean energy giant, evolving from a pure-play renewable energy producer to a platform leader for renewable power and decarbonization solutions.
In 2023, BEP scaled up its capabilities and delivered almost 5,000 megawatts of new capacity, up from 3,500 megawatts in 2022. Its advanced-stage pipeline is de-risked as more than 25% of planned capacity for the next three years is under construction, and over 30% are in the final stages of securing power purchase agreements and construction contracts.
Brookfield Renewable Partners is confident of achieving a 10% growth in funds flow from operations per unit in 2024 and beyond.
It currently pays shareholders an annual dividend of US$1.42 per unit, translating to a forward yield of over 6%. In the last 13 years, BEP has raised dividends by at least 5% annually, showcasing the resiliency of its cash flows.
In 2023, BEP grew its FFO by 7% year over year to US$1.1 billion or US$1.67 per unit, indicating an 85% payout ratio, which is not too high compared with other clean energy companies.
Brookfield Renewable continues to expand
Brookfield Renewable owns and operates a globally diversified portfolio of clean energy assets, including hydroelectric power, solar, and wind. It ended 2023 with roughly 30 gigawatts of operating capacity, while its capacity backlog is much higher at 134 gigawatts, representing massive capital investment opportunities.
One of the key drivers for BEP in the upcoming decade is the growth in global data demand. Since 2020, cloud computing businesses of mega-cap tech companies such as Microsoft, Amazon, and Alphabet have grown by 30% per annum. The rising demand for cloud computing from digitalization and the adoption of artificial intelligence (AI)-powered tools are driving these companies to invest heavily in their capabilities and capacity.
In the last 15 months, the race to increase computing power has been showcased by the increase in demand for computer chips. Now, the cloud-computing businesses of most big-tech companies run on clean power while committing to 100% clean energy targets.
The power-intensive nature of AI is acting as a multiplier on energy demand, driving the need for an increase in renewable energy capabilities.
