The growth engine of this high-yield infrastructure stock is shifting into high gear
Brookfield infrastructure (NYSE: BIP)(NYSE: BIPC) recently reported strong third quarter results. The Global infrastructure company delivered double-digit earnings growth, fueled by a combination of organic increases and acquisitions. Meanwhile, it recently struck a needle move deal and has more in the works, which should fuel faster growth in the coming quarters. These factors put its 3.5% dividend on an even more sustainable basis.
Here’s a look at the Brookfield neighborhood and what to expect for the global infrastructure giant.
Organic growth and capital recycling drove the quarter
Brookfield Infrastructure generated $ 442 million in funds from operations (FFOs) in the third quarter, up 16% year over year. Several factors contributed to this robust result.
Brookfield benefited from the reopening of the global economy, which partly affected the period of the previous year. It also benefited from the initial contribution from its hotly contested acquisition of Inter Pipeline which closed during the quarter. In addition to these catalysts, organic growth bolstered its bottom line by 9%, fueled by inflation-linked rate increases and the completion of more than $ 800 million of expansion projects in its operations.
Brookfield enjoyed solid growth in its four operating segments:
Data source: Brookfield Infrastructure. Author’s table.
Brookfield utilities The segment grew 7% organically in the quarter, benefiting from inflation-indexed contracts and the completion of $ 400 million of expansion projects in the past year. This segment also benefited from the acquisition of the remaining 10% of its regulated gas transport activity in Brazil from Petrobras (NYSE: PBR). These catalysts helped offset the sale of its smart meter portfolio in the UK and its district energy business in North America.
Transportation profits jumped 18% year over year. This segment benefited from higher volumes with the reopening of the global economy and rate hikes linked to inflation. Brookfield has also benefited from its investment in LNG operator Energy partners of Chénière (NYSEMKT: CQP), which made it possible to offset the sale of a stake in its Australian export terminal.
Intermediate profits jumped 55% in the quarter, boosted by a partial contribution from Inter Pipeline, strong gas transportation volumes and higher commodity prices. These factors made it possible to offset the sale of part of the capital of its American gas pipeline.
Finally, the revenues of the data infrastructure segment increased by 16%. It benefited from a full quarter of the recently acquired telecom towers business in India and the organic growth of its existing businesses.
Image source: Getty Images.
What future for Brookfield Infrastructure
Brookfield has done a lot of wheelies and deals this year. The company’s capital recycling program allows it to sell mature assets and reinvest the proceeds in higher yielding opportunities. The highlight of this program was the privatization of Inter Pipeline, which the company recently completed. Combined with its organic growth engines, this transaction allows Brookfield to increase its FFO per share by more than 20% compared to last year’s level.
Meanwhile, Brookfield noted that he had a few other deals going on. He recently disclosed that his parent, Brookfield Asset Management (NYSE: BAM), agreed to purchase the regulated Australian utility AusNet Services via one of its investment funds. Brookfield Infrastructure plans to invest $ 500 million in the transaction, which is expected to close in the second quarter of next year. Additionally, Brookfield indicated in its letter to shareholders that it is pursuing several large-scale opportunities in its target industries and geographies. He said he was working on “once in a lifetime” opportunities to replace aging data infrastructure and help utilities and mid-level assets develop more sustainable operating models.
Brookfield intends to fund these transactions by continuing to sell mature assets. He has already agreed to sell his remaining stake in his Chilean toll highway operation for $ 160 million. Meanwhile, he’s working on selling additional assets that could generate another billion dollars in capital over the next six to eight months.
Walk on gas
Brookfield Infrastructure’s success in winning the bidding war for Inter Pipeline paid immediate dividends. This deal helped improve the company’s third quarter results and should continue to shake things up in the coming quarters.
Meanwhile, Brookfield is working on several other potentially large-scale transactions to add even more fuel to its growth engine. For this reason, he should have enough power to keep increasing his high yield dividend.
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Matthew DiLallo owns shares of Brookfield Asset Management, Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool owns stocks 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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