Brookfield Infrastructure Partners (BIP 5.92%) recently closed the books on another exceptional year. The global infrastructure operator grew its funds from operations (FFO) by 9% on a per-unit basis, fueled by a combination of acquisitions and organic growth. That allowed it to increase its payout by another 7%, marking its 11th consecutive annual raise, and pushing its yield up to 3.9%.
Based on the number of growth drivers the company has coming down the pike -- a topic that was one of the central themes on its fourth-quarter conference call -- these trends appear poised to continue.
Dual fuels will drive another strong year
Brookfield has been active in the M&A market over the past couple of years, and it continued to be last quarter. As CEO Sam Pollock said during the conference call:
"The fourth quarter was very active from an investment perspective. In December, we expanded our data infrastructure segment, committing nearly $1 billion in three separate transactions. This includes the previously announced Indian telecom towers business, as well as two new investments."
One of those new transactions was a deal in which Brookfield and its institutional partners intend to take Cincinnati Bell (CBB) private. Pollock described Cincinnati Bell as "an attractive business with substantial growth prospects." The deal, which could involve an investment of as much as $480 million from Brookfield, is expected to close by year's end, pending regulatory approval. While a rival infrastructure fund has offered more money for Cincinnati Bell, it's a nonbinding proposal, and Brookfield still believes it will be able to close its deal.
The other acquisition is a $140 million investment in a U.K.-based wireless infrastructure company, a deal that Brookfield has already closed. The company also wrapped up several of last year's deals, including investing $500 million in a North American rail operation and $250 million into a federally regulated natural gas gathering and processing operation in Western Canada.
In addition to the uplift from these deals, Brookfield "anticipate[s] delivering another year of organic growth at the high end of our 6% to 9% target range," according to Pollock. Add those tailwinds together, and Brookfield believes "that our run-rate exit FFO per unit in 2020 will be approximately 12% to 15% higher than current levels." This forecast suggests the company will have plenty of leeway to boost its payout again in 2021.
Expect another active year
Brookfield anticipates that 2020 will be another busy year. The company is in the process of selling several mature businesses, with Pollock noting that "we are on track to raise a further $1.5 billion." It closed three deals last year, raising a total of $550 million. Meanwhile, it recently agreed to sell its North American electricity transmission operation for $60 million, in a deal that should close by mid-year. Given its forecast, the company will likely execute additional asset sales this year, which Pollock noted may negatively impact its results in the near term.
However, the CEO stated that the company "plan[s] to redeploy this capital into higher-yielding new investments, which should provide for another period of outsized FFO growth."
Pollock then discussed a few of the opportunities the company has its eye on: "I think the market opportunity in Brazil is very exciting. Most of what we are looking for down there are additions to our existing platforms. We have great activity going on in Ascenty, our data center business, that business has exceeded our expectations." He also stated that "there's a number of toll road opportunities that are coming to market that will be very interesting for our toll road platform." Finally, he noted:
"We do see interesting opportunities particularly relative to past years when the MLP market was much stronger than it is today. We do see lots of companies, whether it's take-privates or just structured transactions where public companies need private capital assistance. So I think that will be an interesting opportunity in the years ahead."
With a strong balance sheet, which it aims to enhance via additional asset sales, Brookfield has the financial flexibility to continue making investments this year. That would give it even more fuel to grow FFO at an accelerated pace in the future, which should support continued distribution increases.
Well-positioned to keep enriching investors
Brookfield Infrastructure Partners has a long track record of creating value for shareholders, powered in part by its ability to consistently increase its distributions. That growth streak appears poised to continue, given the boost it expects from acquisitions. Because of that, its stock remains an ideal option for dividend investors.