Brookfield Renewable Partners (NYSE: BEP) has done a remarkable job creating value for its investors over the years. The renewable-energy company has been able to consistently increase its cash flow to support 6% compound annual growth in its distribution to investors since 2012, which has helped boost the yield up to 6%. That steady dividend growth has helped power market-beating total annualized returns of 15% since its formation.
Brookfield Renewable believes it can continue creating value for its investors in the future no matter the market conditions. That was one of the key themes on the company's first-quarter conference call, where CEO Sachin Shah laid out how Brookfield can win in both good times and bad.
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We'll continue being creative during the bull market run
After running through the company's first-quarter results, Shah pivoted and began discussing its outlook. He started by looking at how the company would run its business if the currently strong market conditions continue. He stated:
Brookfield Renewable likes to invest on a value basis, which is harder to do during bull market conditions. It has forced the company to get creative in finding deals that meet its high return standards. One way it has done that is by completing several complex transactions in recent years.
For example, it partnered with its parent, Brookfield Asset Management (NYSE: BAM), to take control of TerraForm Power (NASDAQ: TERP) after the wind and solar power company's former parent went bankrupt. The two companies subsequently invested more money in TerraForm to help it buy a wind and solar company in Spain.
Brookfield Renewable's most recent deal was a creative transaction with Canadian utility TransAlta (NYSE: TAC). Brookfield is investing $750 million Canadian ($557 million) directly into the company via preferred stock that will eventually convert into an ownership interest in TransAlta's hydroelectric portfolio.
In both deals, Brookfield found outside-the-box ways to invest in high-quality renewable power assets so that it didn't have to pay a high price.
We're well positioned to pounce when market conditions deteriorate
Meanwhile, Shah noted: "Should the markets weaken, we believe our strong balance sheet, our liquidity, our robust asset sales program, and access to capital will reduce the need to issue equity to fund growth. Accordingly, we believe we are one of the few companies in this sector with a strategy and the financial flexibility to benefit during periods of both market strength and weakness."
Brookfield Renewable has worked hard to maintain a strong financial profile during the good times in recent years so that it can pounce on opportunities that could arise if market conditions weaken. That's why the company has been taking advantage of the currently healthy market for renewables by selling some of its assets.
Last fall, for example, the company sold a 50% interest in a portfolio of hydroelectric assets in Canada to a group of investors. That deal enabled it to unlock some of the value of these assets so that it could redeploy that money into higher growth opportunities. By cashing in on some assets when the market is willing to pay a premium, Brookfield will enter the next downturn with a strong balance sheet and ample liquidity. That will give it a competitive advantage over rivals, which might need to sell assets when market conditions deteriorate to shore up their financial profile.
Able to win in any market
Brookfield Renewable Partners has been a big winner over the years. That's because the company makes sure it's in the position to thrive in any market environment. It does that by maintaining a top-notch balance sheet and staying true to its value investing approach. That helps it avoid overpaying and stretching itself too thin during strong markets so that it has the flexibility to take advantage of opportunities that always seem to arise when conditions deteriorate.
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Matthew DiLallo owns shares of Brookfield Asset Management, Brookfield Renewable Partners L.P., and TerraForm Power. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool has a disclosure policy.