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These High-Yield Stocks Just Grabbed a Piece of an Energy Market That’s Growing Faster Than China’s

By Matthew DiLallo - Oct 21, 2018 at 6:35AM

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Energy demand growth from this country will be nearly three times that of China in the coming decades.

China is one of the fastest-growing energy markets on the planet, with its demand surging at a 6.3% annual rate over the last 20 years. However, that growth rate will slow in those to come according to an outlook by BP (BP -0.34%). The oil giant estimates that Chinese energy demand will only increase at a 1.5% annual rate through 2040, though at that pace, it will consume a quarter of the world's energy by that year.

While China has been the main driver of global energy demand growth in the recent past, BP sees India emerging as the fastest-growing energy consumer in decades to come, with its consumption expanding at a 4.2% annual rate, setting it up to explode 165% higher by 2040. That bullish outlook led both French energy giant Total (TTE -0.39%) and infrastructure behemoth Brookfield Infrastructure Partners (BIP 0.48%) to take steps to grab a piece of the country's rapidly expanding energy market. Those decisions should give the high-yielding companies more fuel to grow their dividends in the coming years.

A person drawing a chart of rising dollar signs on a green chalkboard.

Image source: Getty Images.

Taking a stake in an Indian natural gas pipeline system

Brookfield Infrastructure Partners recently unveiled that it's in advanced discussions to take a stake in a more-than-900-mile natural gas transmission business in India. The system transports gas across the country from an offshore field in the east, where it then feeds into the country's other pipeline systems in the west. It's the first time a gas pipeline system in India has gone up for sale, meaning Brookfield is getting in on the ground floor.

In discussing the acquisition at the company's investor day last month, Hillary Higgins, Brookfield Infrastructure's vice president of strategic operations, stated:

India requires a tremendous amount of gas, and there's only two ways that India can bring in this gas. The first is from LNG import, which is your more expensive option. The second is from the KG Basin. The KG Basin is on the offshore East Coast of India, and it represents 50% of India's in-place gas reserves. This pipeline collects the gas from that East Coast basin and draws it across the country to the West Coast for petrochemical, residential and commercial use. This asset represents Brookfield's entry into India's growing natural gas market.

CEO Sam Pollock also commented on the transaction at that event, saying, "Our plans really are to use this as a platform to grow in that region and take advantage of the dynamic nature of the energy markets there."

This transaction is one of many steps Brookfield has taken to expand its infrastructure business around the world. The growth from these investments positions the company to increase its 4.7%-yielding distribution to investors at a 5% to 9% annual rate for the foreseeable future.

Pipelines stretching over a blue sea with a blue sky ahead.

Image source: Getty Images.

Taking a two-pronged approach in India

Total, meanwhile, signed an agreement with India's Adani Group to jointly develop a fuel retail network in the country as well as several LNG regasification terminals, which turn LNG back into a gas so that it can flow through the country's pipeline network. Under the agreement, Total will help build out 1,500 retail gas stations in India over the next 10 years to meet that country's fast-growing demand for motor fuel. It's a move that makes sense given BP's forecast that demand for transportation fuels will grow at a 4.4% annual clip in India, with oil-based fuels expected to command 96% of the market by 2040.

In addition to that, Total will help Adani develop several LNG regasification terminals in India, including Dhamra LNG, which is under development on the country's east coast. As Brookfield Infrastructure noted, LNG is one of only two ways to get gas to India's markets, which, while more expensive, is still a crucial part of meeting the country's fast-growing demand for natural gas. In BP's view, demand for gas will explode 185% by 2040, which will fuel a 291% increase in gas imports. Because of that, the country will need to build more LNG import facilities as well as additional gas pipelines.

Total's two-pronged approach to capturing India's fast-growing energy market should provide the company with a steadily rising stream of cash flow in the coming decade. That will give the oil and gas giant more money to continue increasing its 4.8%-yielding dividend, which it currently expects to boost 10% by 2020.

A new fuel source for income-seeking investors

Brookfield Infrastructure and Total see a big opportunity in India's energy market, which is why both companies are making investments in the country. Those deals could pay big dividends in the coming years by supplying both companies with more cash flow so that they can continue increasing their already high-yielding dividends. That makes both intriguing options for income-focused investors to consider.


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Stocks Mentioned

Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$60.29 (0.48%) $0.29
BP p.l.c. Stock Quote
BP p.l.c.
$32.56 (-0.34%) $0.11
TotalEnergies Stock Quote
$58.83 (-0.39%) $0.23

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