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Brookfield Infrastructure Partners Is About to Stomp on the Gas

By Matthew DiLallo – Jun 17, 2019 at 5:06PM

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The high-yielding infrastructure giant is getting ready to top off its growth engine.

Brookfield Infrastructure Partners' (BIP 0.49%) growth engine ran out of gas last year. Cash flow, which had increased at a double-digit compound annual rate over the past decade, flattened out after the company sold a large electric transmission business in Chile.

That sale, however, provided the company with the funds to make several acquisitions. While those deals helped restart its growth engine over the past couple of quarters, an even bigger acceleration is on the way. That's because the company is about to close its last deal, which should kick earnings growth into another gear.

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Image source: Getty Images.

Slowly hitting the gas

After flat-lining last year, Brookfield's cash flow increased by about 4% during the first quarter. That's due in large part to the early returns of the $700 million it invested in acquisitions at the end of last year. The company completed its purchase of residential infrastructure company Enercare as well as the first phase of the acquisition of Enbridge's (ENB -0.05%) Western Canadian gathering and processing business. Those two deals helped boost the earnings from Brookfield Infrastructure's energy segment by 62% during the first quarter. Meanwhile, the company also closed its investment in some U.S. data centers owned by AT&T, which helped fuel a nearly 50% increase in earnings from data infrastructure.

The company also benefited from the completion of several organic growth projects, including the first phase of a new gas pipeline on the U.S. Gulf Coast. Those expansions helped Brookfield Infrastructure deliver 10% organic earnings growth, which was above the high end of its 6% to 9% target range.

Pedal to the metal

Brookfield's earnings growth rate should shift into a higher gear during the second quarter. Not only will the company continue benefiting from the investments that boosted results during the first quarter, but it has also completed another $430 million of acquisitions so far this year. Those more recent transactions included buying a stake in a natural gas pipeline in India and closing a joint venture with Digital Realty (DLR -3.93%) for data centers in South America.

Meanwhile, the company's earnings should further accelerate in the second half of the year, given that it expects to complete the final phase of its Enbridge deal during the third quarter. Once Brookfield Infrastructure completes that last deal, its annual earnings run rate should be 20% above where it was before the company sold the transmission business in Chile. In addition, the recent acquisitions should organically grow earnings at a 5%-7% annual rate, which is an acceleration from the 2%-3% yearly increase Brookfield Infrastructure anticipated. That puts the company on track to grow earnings toward the high end of its 6% to 9% annual target range over the coming years.

The initial stages of the next growth spurt are already under way

Brookfield Infrastructure believes it can maintain an accelerated earnings growth rate by continuing to recycle capital. The company is targeting another $1.5 billion to $2 billion of mature businesses by the end of next year so that it has the cash to invest in more compelling opportunities.

The infrastructure giant has already sealed deals to sell an interest in its Chilean toll road operation as well as its European bulk port operations as part of this next phase. At the same time, it's reviewing several acquisition opportunities around the globe, including in the U.S. midstream space, where companies need $100 billion in funding for expansions through 2021 alone. Overall, the company is casting a wide net so that it can find deals that enable it to deliver accelerated earnings growth.

Lots of growth and income ahead

Brookfield Infrastructure Partners' main attraction is its dividend, which currently yields 4.7%. However, the company is adding to its appeal by working to grow earnings at an accelerated pace. The upcoming upside from its recent moves makes it a compelling stock to buy these days, since they should give it the fuel to deliver market-beating total returns.

Matthew DiLallo owns shares of Brookfield Infrastructure Partners and Enbridge. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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