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This High-Yielding Infrastructure Stock's Growth Engine Shifts Into High Gear

By Matthew DiLallo – Nov 4, 2021 at 7:46AM

Key Points

  • Brookfield infrastructure got an immediate boost from its Inter Pipeline deal
  • The company has several more deals in the pipeline (figuratively speaking), setting it up for continued fast-paced growth.

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A needle-moving deal gives the infrastructure company lots of fuel to keep growing.

Brookfield Infrastructure (BIP 0.34%) (BIPC -1.29%) recently reported strong third-quarter results. The global infrastructure company delivered double-digit earnings growth, powered by a combination of organic increases and acquisitions. Meanwhile, it recently completed a needle-moving deal and has others in the works, which should fuel faster growth in the coming quarters. These factors put its 3.5%-yielding dividend on an even more sustainable foundation.

Here's a closer look at Brookfield's quarter and what's ahead for the global infrastructure giant.

Organic growth and capital recycling drove the quarter

Brookfield Infrastructure generated $442 million in funds from operations (FFO) during the third quarter, up 16% year over year. Several factors contributed to that robust result.

Brookfield benefited from the reopening of the global economy, which partly affected the prior-year period. It also got a boost from the initial contribution of its hard-fought Inter Pipeline acquisition that closed in the quarter. On top of those catalysts, organic growth bolstered its bottom line by 9%, powered by inflation-linked rate increases and the completion of more than $800 million of expansion projects across its operations.

Brookfield benefited from solid growth across all four of its operating segments:

Brookfield Infrastructure's FFO by segment in the third quarter of 2021 and 2020.

Data source: Brookfield Infrastructure. Chart by the author.

Brookfield's utilities segment delivered 7% organic growth during the quarter, benefiting from inflation-linked contracts and completion of $400 million of expansion projects over the past year. This segment also got a boost from acquiring the remaining 10% interest in its regulated gas transmission business in Brazil from Petrobras (PBR -2.26%). These catalysts helped offset the sale of its U.K. smart-meter portfolio and North American district energy business.

Transportation earnings jumped 18% year over year. This segment benefited from higher volumes as the global economy reopened, and from inflation-linked rate increases. Brookfield also benefited from its investment in LNG operator Cheniere Energy Partners (CQP 1.12%), which helped offset the sale of a stake in its Australian export terminal.

Midstream earnings surged 55% in the quarter, boosted by a partial contribution from Inter Pipeline, strong gas transportation volumes, and higher commodity prices. These factors helped offset the sale of a part stake in its U.S. gas pipeline.

Finally, earnings from the data infrastructure segment rose 16%. It benefited from a full quarter of the recently acquired telecom tower business in India and the organic growth of its existing operations.

People shaking hands overlaid with arrows pointing upward.

Image source: Getty Images.

What's ahead for Brookfield Infrastructure

Brookfield has been doing a lot of wheeling and dealing this year. The company's capital recycling program has it selling mature assets and reinvesting the proceeds into higher-returning opportunities. The highlight of this program was the privatization of Inter Pipeline, which the company recently completed. Combined with its organic growth drivers, this deal has Brookfield on track to grow its FFO per share by more than 20% above last year's level.

Meanwhile, Brookfield noted that it has a few more deals in the works. It recently unveiled that its parent, Brookfield Asset Management (BN 1.35%), agreed to buy Australian regulated utility AusNet Services through one of its investment funds. Brookfield Infrastructure expects to invest $500 million into that transaction, which should close in the second quarter of next year. In addition, Brookfield noted in its shareholder letter that it's pursuing several large-scale opportunities across its target sectors and geographies. It said that it's working on some "once in a lifetime" opportunities to replace aging data infrastructure and assist utilities and midstream assets with developing more-sustainable operating models.

Brookfield intends to finance these deals by continuing to sell mature assets. It has already agreed to sell its remaining stake in its Chilean toll road operation for $160 million. Meanwhile, it's working toward selling additional assets that could generate another $1 billion in capital over the next six to eight months.

Stepping on the gas

Brookfield Infrastructure's success in winning the bidding war for Inter Pipeline paid immediate dividends. That deal helped boost the company's third-quarter results and should continue moving the needle in the coming quarters.

Meanwhile, Brookfield is working on several other potentially large-scale transactions to add even more fuel to its growth engine. Because of that, it should have plenty of power to continue growing its high-yielding dividend.

Matthew DiLallo owns shares of Brookfield Asset Management, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool owns shares of and recommends Brookfield Asset Management. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV, Brookfield Infra Partners LP Units, Brookfield Infrastructure Corporation, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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