Brookfield Renewable stock has huge long-term upside potential. Is now the time to buy?
Want to bet on one of the biggest growth markets? Brookfield Renewable Corporation (BEPC 0.10%) could be the stock for you. Its shares have done terrifically well since the company went public more than two decades ago. But if you want to profit from this stock, there are a few things you need to know.
Understand this one thing first
Before diving into Brookfield Renewable, it's important to understand its history. The stock was launched in the summer of 2020, but the underlying company has a history stretching back several decades.
The story of Brookfield Renewable starts with Brookfield Asset Management, which still retains a large position in the company. Brookfield Asset Management specializes in creating investment vehicles that track unique assets. In this case, Brookfield Renewable is designed to invest in, build, and operate renewable energy projects such as wind, solar, and hydro generation facilities.
Previously, Brookfield Asset Management operated several investment vehicles focused on renewable energy. But in 2011, it combined several of these vehicles into Brookfield Renewable Partners L.P. Then, in 2020, Brookfield Renewable Corp. was created to allow more investors to access the vehicle. The initial structure as a Limited Partnership, management argued, prevented many investors from taking part.
The end result is Brookfield Renewable Corp., which trades on the New York Stock Exchange. The stock's performance since launching hasn't been great. But if you zoom out and view the company's entire operating history, the business has delivered a 2,930% gain since the start of 2001. Just viewing the history of Brookfield Renewable Corp.'s relatively new ticker hides this reality.
BEP Total Return Level data by YCharts
The stock can deliver income and growth
When many investors think of passive income, they think of dividends. Dividends are typically cash payments that companies send straight to shareholders, sometimes every month, other times every quarter.
When it comes to dividends, Brookfield Renewable delivers. Many of its projects -- infrastructure like hydropower and wind power facilities -- generate a regular stream of cash for the company. Some of this cash will be redeployed into future projects. Much of the rest is paid out in dividends.
Since debuting in 2020, Brookfield Renewable has delivered a fairly stable payout of dividends although it has varied a bit over the years. Right now, the yield is very close to the 5% mark. That means for every $1,000 invested, you'd receive almost $50 in annual dividends. For every $10,000 invested, you'd receive nearly $500 in dividends per year.
But this stock can deliver more than dividends. In fact, the company is targeting one of the biggest growth markets.
BEPC Dividend Yield data by YCharts
Renewable energy is a huge growth market. According to Bloomberg, global investment into renewable energy technologies hit $1.8 trillion in 2023. That's a new record, up 17% year over year. Already, Brookfield Renewable owns more than 200,000 megawatts of renewable power generation. Most of that is solar, wind, and hydro, but the company also has around 6,000 megawatts of energy storage infrastructure, with another 45,000 megawatts in development. Put simply, Brookfield Renewable is already a renewable energy powerhouse.
But this business isn't a static operator. Brookfield Renewable's greatest strength is arguably its investing strategy. The highest returns for an asset are typically in the earlier stages. This is where the company specializes. When a project matures, and the valuation begins to plateau after rising dramatically, Brookfield Renewable will often sell the asset, reinvesting the proceeds back into higher return projects. Management expects to deploy between $7 billion and $8 billion in capital over the next five years, targeting internal rates of return between 12% and 15%.
The past few years haven't been kind to the company. Rising interest rates have made building and acquiring assets more costly. Plus, the valuation that the market is assigning to renewable asset businesses has fallen recently. However, the long-term growth thesis is still intact. And Brookfield Renewable Energy has one of the best resumes in the business.
After a recent pullback, shares trade at a 14% discount to book value, with the dividend yield near an all-time high. Patient investors should strongly consider a position at today's prices.
Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield Asset Management and Brookfield Renewable. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
