Last year will go down as one of the best in Brookfield Infrastructure Partners' (NYSE:BIP) history. The infrastructure company crushed the blistering-hot stock market, delivering a total return of 39.7% versus 21.8% for the S&P 500. Fueling that outperformance was a combination of needle-moving acquisitions and organic expansions, which drove a 15% year-over-year increase in funds from operations (FFO) per unit through the third quarter.

That performance will be tough to repeat this year, especially given what's coming down its mergers and acquisitions pipeline. That said, 2018 should still be a good year for the company, with FFO likely setting another record, giving it the cash to increase its 3.9%-yielding distribution yet again.

The silhouette of a communications tower with the sun setting in the background.

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Running low on M&A fuel

One of the primary fuels of last year's results was the closure of a $1.3 billion investment in a natural gas transmission utility in Brazil last April. That deal set the tone for 2017, increasing earnings in the company's utilities segment by 66% and 68% in the second and third quarters, respectively. The transaction will likely drive a similar growth rate in the fourth quarter as well as this year's first quarter. In addition to that deal, Brookfield Infrastructure also benefited from new investments in toll roads and ports, which helped bolster earnings in its transportation group.

Its acquisition-driven growth, however, could stall this year. For starters, it recently announced the sale of its stake in an electricity transmission business in Chile for $1.3 billion. When that deal closes, it will act as a headwind for FFO growth this year because few acquisitions are coming down the pipeline to replace those lost earnings in the near term. That's partially because a planned $200 million investment in communication towers in India fell through at the end of last year. As a result, the company's only pending deals at the end of the third quarter were a $15 million investment in a Peruvian water utility and the planned $100 million purchase of a stake in two more toll roads in India.

In addition to those confirmed transactions, Reuters reported in November that Brookfield Infrastructure had agreed to buy a 59.1% stake in a Colombian retail gas distribution business for about $590 million and that it would launch a takeover for the rest of the company valuing it at about $1.22 billion. Brookfield would likely just invest in a minority stake in this business, though, so if that deal goes through, it would only help offset some of the lost earnings from the sale of its Chilean transmission business. Meanwhile, it said it has other deals in the pipeline, including more tower transactions in India, which could come to fruition this year and provide a boost.

Welder on a construction site.

Image source: Getty Images.

A replacement is in place

While M&A was the big driver last year, it doesn't seem like Brookfield can keep up that pace this year. However, that doesn't mean the company won't grow in 2018. Quite the contrary since it has underway a large backlog of expansion projects, which have been quietly moving the needle. In the third quarter, for example, the company delivered year-over-year organic growth of 10%, which was above the high end of its 6% to 9% long-term target.

The company ended last quarter with $2.3 billion of expansion projects in progress and had another $1.5 billion in development. These expansions, along with the continued steady growth of its legacy businesses, position it to keep increasing FFO at or above its long-term target range in 2018 and beyond.

A solid year, with spectacular potential

As things stand right now, Brookfield Infrastructure Partners has enough fuel in the tank to push FFO to another record in 2018. That will likely enable the company to increase its lucrative distribution by another 5% to 9% this year. In the meantime, there's more upside potential if the company can secure and close another needle-moving acquisition before the end of the year. If it can, then 2018 might be even better than last year, making it the one investors will remember as its best yet.

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