Brookfield Renewable Partners (NYSE: BEP) has done an exceptional job of creating value for its investors over the years. Since 1999, the renewable energy company has generated an annual return of 16% when they have priced the unit price to its high return.
However, as good as previous returns have been, those who come forward can be even better. That's because the company believes it has enough power sources to increase its cash flow per unit by as much as 16% annually over the next five years. Add the 5% distribution distribution, and the total return may approach 20% per year.
Brookfield Renewable assumes that four factors may require between 9% and 1
In addition to this, Brookfield Renewable plans to invest $ 4 billion over the next five years. on expansion-related initiatives. Organic expansions such as the construction of new water, wind, solar and storage facilities as well as powerful projects at some of the existing wind farms will help increase revenues by 3% to 5% per year. The company also believes it can complete enough acquisitions to add incremental 3% to 5% per annum to the bottom line.
The renewable energy company has a number of available sources of funding to finance this growth. These include retained cash flow after paying the distribution, issuing new debt and preferred equity and selling non-current assets.
Although there is some risk to the outlook since acquisitions will play a key role, Brookfield has an excellent record of making deals. In the last five years alone, it has invested $ 3.5 billion in several transactions. Among the noteworthy deals is to buy a stake in TerraForm Power and invest in TransAlta & # 39; s hydroelectric portfolio in Alberta, Canada. It also formed a joint venture with a private equity fund to control the Spanish solar developer X-Eilo. In both cases, the company utilized its unique expertise to make a deal that few others could have completed. Because of this, it is able to earn a higher return on investment, which improves the possibility of increasing cash flow.
A steadily increasing revenue stream
Brookfield's rapid cash flow growth in the coming years will allow the company to continue to increase its distribution to investors. In the company's view, it should be able to increase the payout by an annual rate of 5% to 9% over the next few years. Given that cash flow will grow at a faster pace than distribution, Brookfield's payout will be on an ever stronger basis. This is because the payout ratio will decrease even if the distribution continues to climb. As a result, the company's payout will be even less risky in the coming years.
It all provides a compelling opportunity
Brookfield Renewable Partners is confident that it can increase its cash flow per unit by 9% to 16% annual rate over the next five years. Add its 5% distributed distribution, which it expects to increase by 5% to 9% annual interest rate, and this company looks like it could have enough fuel to generate 20% total annual return. The low risk upside potential makes it an excellent stock to consider buying for the long term.