Brookfield Infrastructure (BIP 0.77%) (BIPC 0.40%) is having a solid year in 2020 despite all the economic turbulence caused by the COVID-19 outbreak. The global infrastructure operator is still on track to grow its cash flow per share despite some challenges during the second quarter. The stock is up more than 15% on the year.
As good as 2020 has been, 2021 could be even better. The headwinds facing the company should fade, and it should benefit from some needle-moving investments made at the end of 2020. On top of that, it has plenty of financial flexibility to continue making value-enhancing investments over the next year. Brookfield seems poised to deliver high-powered earnings growth in 2021. Add that to its 3.8%-yielding dividend, and it could generate even higher total returns in the coming year.
Stomping on the accelerator
Brookfield has navigated this year's turbulent market conditions reasonably well. The company's FFO has declined by less than 1% on a per-share basis through the third quarter. Asset sales, foreign exchange fluctuations, and lower volumes in some of its transportation businesses weighed on its results.
However, the company expects its full-year FFO per share to rise year-over-year as the economy continues to improve. It also expects to benefit from recently completed expansion projects and acquisitions. That sets the stage for a potentially monster 2021. Headwinds that impacted it this year -- a 25% decline in the Brazilian real, the effect of government-mandated shutdowns on its volumes, and a delay in closing its Indian telecom business -- should become tailwinds in 2021. Without those issues, its 2020 results would have been up more than 15% this year. Brookfield should also benefit from additional organic expansion project completions and new investments in the coming year.
The company recently secured one needle-moving deal as it's buying a stake in Cheniere Energy Partners (CQP 0.53%), which operates the largest U.S. LNG export facility. Brookfield is investing $425 million for an interest in the energy company. That investment should supply Brookfield Infrastructure with steady income since Cheniere sells 85% of the LNG it produces under long-term, fixed-rate contracts.
In addition, Brookfield invested about $400 million on organic expansion projects in 2020, which should pay dividends over the next year as they come online. When combined with higher rates on existing contracts and higher volumes as the economy expands, the organic growth drivers should add another 6% to 9% to its annual FFO in the coming year. Add it all up, and Brookfield's FFO could grow by more than 20% in 2021.
Upside to the already high-powered plan
While Brookfield doesn't need any more fuel, the company is actively searching for additional investment opportunities. The company currently anticipates that it could invest more than $2 billion annually over the next three to five years on new investment opportunities, an acceleration from this year's $1.7 billion investment level.
It sees lots of opportunities in the U.S. energy midstream sector, which has fallen out of favor with investors. Like its investment in Cheniere, midstream assets generate stable income backed by long-term contracts. Meanwhile, most trade at low valuations these days because investors have abandoned the sector in favor of renewables. While the global economy is shifting away from fossil fuels, natural gas remains a key bridge fuel since it can help lower carbon emissions. That's why Brookfield has been focusing on picking up gas infrastructure assets in recent years and will likely continue doing so if it can find the right deals. If the company can secure another needle-moving transaction early in 2021, it could grow even faster next year.
Plenty of fuel to deliver big-time total returns in 2021
Brookfield Infrastructure had another solid year in 2020 as its cash flow grew despite some significant headwinds. However, 2021 appears poised to be an even better one for the company since its headwinds should fade, and it should benefit from the investments it made this year. On top of that visible upside, there's the potential for even more growth if it can secure another needle-moving deal. Brookfield stands out as a top energy stock to buy heading into 2021.