The energy sector is going through a significant shift. To mitigate the worst effects of climate change, the global economy is gradually weaning itself off fossil fuels and converting to cleaner alternative energy sources. The change may have an impact on the energy businesses that primarily employ fossil fuels' capacity to sustain and increase their payouts.
It also offers a great deal of financial flexibility. In addition to having access to $15 billion in capital through its management of the recently completed Global Transition Fund, Brookfield had $4 billion in liquidity (cash and borrowing capacity).
Brookfield Renewable has a strong track record of dividend increases. Earlier this year, the renewable energy provider announced its 11th consecutive annual dividend raise of at least 5%.
The dividend, which yields 3.3% right now, is in fantastic condition. For the majority of the electricity it produces, Brookfield generates a relatively steady cash flow that is supported by fixed-rate power purchase agreements. During the first half of this year, it had a decent dividend payout ratio of 76% of its funds from operations (FFO).
The decarbonization trend, however, offers enormous opportunities for businesses committed to that goal. Few businesses are better positioned than Brookfield Renewable (NYSE: BEPC) to benefit from this megatrend (NYSE: BEP). It manages a globally diversified portfolio of transition and renewable energy assets that produce consistent cash flow and are supported by long-term contracts.
Due to its robust financial position, Brookfield has the freedom to keep growing its business. The corporation currently has a sizable backlog of investments related to decarbonization. It is working to implement a 17 GW pipeline of advanced-stage and under-construction renewable energy projects.
That is a component of a significant pipeline of power projects totaling 75 GW and capacity for storing and capturing 8 million metric tonnes of carbon dioxide per year that is being developed. The company's goal to increase its capacity for producing renewable energy by 2030 is supported by this development pipeline.
Two other organic growth factors for the business are rate increases prompted by inflation and margin improvement. Each year, it expects inflation to increase its bottom line by 1% to 2%. As existing contracts expire, its expanding size and capacity to negotiate higher power pricing should increase its FFO per share by an additional 2% to 4% annually.
Building and managing renewable energy assets globally is a huge opportunity that Brookfield Renewable is maximising. The business has an enormous backlog of development projects, which should sustain growth for many years. When you factor in its other growth factors, Brookfield should be able to continually increase its appealing dividend while giving it an even more solid base.