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Brookfield Renewable Partners Generates Strong Growth in Q1

Matthew DiLallo, The Motley Fool

Brookfield Renewable Partners (NYSE: BEP) sprinted out of the gate in 2019. The renewable power-generating company benefited from stronger-than-normal resource conditions that, along with the company's expansion-related investments, helped drive big-time cash flow growth during the first quarter. In addition to its excellent operational performance, the company continued making progress on the strategic front, which should give it the power to keep growing its dividend.

A look at the numbers

Metric

Q1 2019

Q1 2018

Year-Over-Year Change

Actual generation

7,246 GWh

6,694 GWh

8.2%

Funds from operations

$227 million

$192 million

18.2%

FFO per unit

$0.73

$0.62

17.7%

Data source: Brookfield Renewable Partners. GWh = gigawatt hours. FFO = funds from operations.

The company's power generation was 7% above the long-term average during the quarter due to strong resources. On top of that, the company benefited from recent investments, including boosting its stake in fellow renewable energy company Terraform Power (NASDAQ: TERP) last year. Those two factors drove high-powered cash flow growth during the quarter.

All three of the company's segments performed well during the quarter:

Brookfield Renewable's FFO by segment in the first quarter of 2019 and 2018.

Data source: Brookfield Renewable Partners. Chart by the author.

Hydropower earnings rose about 5% year over year. The company benefited from above-average generation thanks to good water resources during the quarter in North America. Meanwhile, the company also generated strong results in South America, thanks to higher power prices.

The company's wind and solar businesses combined to generate $67 million in FFO during the period, which was 43% higher year over year. That's due to the increased investment in TerraForm Power, as well as recently completed expansion projects. Meanwhile, the company's storage facilities and other operations added $7 million in FFO during the quarter.

Solar panels and a wind tower with the sun setting in the background.

Image source: Getty Images.

A look at what's ahead

Brookfield Renewable continues to be active on the strategic front. In March, the company announced a creative transaction with Canadian power company TransAlta (NYSE: TAC). Brookfield and its partners agreed to invest 750 million Canadian dollars ($557 million) into TransAlta in two installments. The investment consists of two convertible securities that will initially pay a 7% yield. The first one for CA$350 million ($260 million) closed earlier this month, and the company expects to fund the second one next October.

These securities will provide Brookfield with steady cash flow in the near term while giving it the option to convert them into an equity interest in TransAlta's hydroelectric assets in the future. In addition to that, Brookfield Renewable agreed to increase its ownership in TransAlta from 5% to more than 9%.

Brookfield Renewable also bought stakes in two wind farms in India. The company has been reviewing opportunities in that market over the last few years but hadn't made any deals due to valuation. Prices, however, have started coming down, which enabled the company to scoop up a compelling opportunity to invest more capital into the country outside of the assets it acquired as part of TerraForm Global.

The company completed a 19-megawatt hydroelectric facility in Brazil during the quarter that will provide some incremental cash flow starting in the second quarter. Brookfield also continued construction on 134 megawatts of hydro, wind, solar, and storage projects that will generate $13 million of annualized FFO when they start up over the next few years. Finally, the company is working on 636 megawatts of new hydro, wind, and solar projects and has 220 megawatts of wind repowering projects in development to replace aging turbines with newer, more powerful ones.

Brookfield also continued to strengthen its financial profile by selling non-core assets and preferred units. These moves helped the company raise $400 million during the quarter, which boosted its liquidity to $2.3 billion. It has another $90 million in non-core asset sales underway, which will further bolster its financial profile. That gives it plenty of funding to continue making acquisitions, as well as invest high-return growth projects.

A high-yield stock for the long term

Brookfield Renewable Partners delivered excellent first-quarter results, which has it on track for another good year. On top of that, the company continues making progress on its strategic growth initiatives. Those two factors should keep the company on track with its goal to increase its 6.2%-yielding distribution at a 5% to 9% annual pace over the next several years.

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Matthew DiLallo owns shares of Brookfield Renewable Partners L.P. and TerraForm Power. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.