The leading global renewable energy stock should produce powerful total returns over the coming years.
The energy sector is undergoing a massive transition. It is switching fuel sources from carbon-based fossil fuels to lower-carbon alternatives. This transition will take decades and trillions of dollars to complete.
Few companies are better positioned to capitalize on the decarbonization megatrend than Brookfield Renewable (BEPC 2.63%) (BEP 2.22%). Its globally diversified platform of renewable energy and sustainable solutions is making it the partner of choice for companies looking to decarbonize their operations. These catalysts should power robust growth and total returns for the company’s investors, making it the ultimate energy stock to buy right now.
A solid base return
Brookfield Renewable is one of the world’s largest publicly traded 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 a substantial percentage of its steady cash flow to investors via dividends. That payout currently yields 4.5%, more than triple the S&P 500‘s dividend yield (1.3%). Brookfield Renewable can turn a $1,000 investment into $45 of annual dividend income at that rate. That’s a solid base return.
Multiple growth catalysts
While Brookfield Renewable’s high-yielding dividend is a big draw, especially among income-focused investors, it’s only part of the story. The company also offers high-powered growth potential.
Inflation escalators in Brookfield’s existing PPAs should grow its funds from operations (FFO) by around 2% to 3% annually through at least 2028. In addition, the company believes that it can add another 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 believes its massive development pipeline will add another 3% to 5% to its bottom line each year.
The company recently significantly enhanced its development profile by inking a five-year development deal with tech titan Microsoft. Brookfield will deliver over 10.5 gigawatts (GW) of new renewable energy capacity in the U.S. and Europe to Microsoft in the 2026 to 2030 timeframe. That represents the largest corporate PPA agreement ever (almost eight times larger than the prior record). The deal extends their strong partnership (Microsoft already has PPAs covering nearly 1 GW of capacity). The partners can expand that 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 unrivaled scale and diversification made this deal possible.
Brookfield also expects to continue to be an active acquirer. It believes mergers and acquisitions activities will combine with its strong organic growth rate to drive 10%+ FFO per share growth annually through 2028. It recently agreed to invest $500 million for a controlling stake in Indian renewable energy developer Leap Green Energy. Last year, the company agreed to invest a record $2 billion across several deals, including nuclear servicing company Westinghouse and Duke Energy’s commercial renewable energy business.
Brookfield Renewable’s rapidly growing earnings should give it the power to increase its already attractive dividend by 5% to 9% per year. The company has grown its payout by at least 5% annually for 13 straight years.
Powerful total return potential
Brookfield’s combination of dividend income and earnings growth should help power strong returns over the next several years. With a 4.5% (and growing) base return from dividend income and 10%+ annual earnings growth, Brookfield could generate total annual returns in the mid-teens. That’s a robust return. It could enable investors to double their $1,000 investment over the next five years.
Matt DiLallo has positions in Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has positions in 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 Motley Fool has a disclosure policy.
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