The global infrastructure giant expects to generate steadily growing cash flow, which should fuel 5% to 9% annual distribution growth, if everything goes according to plan
Brookfield Infrastructure Partners (NYSE:BIP) is one of the largest owners of infrastructure assets in the world. From toll roads in India, Brazil, and Peru to ports throughout Europe, Asia, South America, and Australia, along with several other assets in between, the company owns a diverse set of backbone infrastructure assets that generate steady cash flow, underpinned by long-term contracts and regulatory frameworks. Those two factors support not only the company’s cash flow but also its growth projections.
In fact, the company estimates that a combination of inflationary price increases, volume upside from GPD growth, and capital projects under way will drive 6% to 9% annual organic growth in its funds from operations, which should fuel 5% to 9% annual distribution growth. Meanwhile, a steady diet of acquisitions could push those numbers meaningfully higher in the future.
But not all that growth is a sure thing. Here’s a look at what might cause the company to underperform expectations.
Inflation might not help as much as hoped
One of the three pillars of Brookfield Infrastructure Partners’ organic growth projection is the ability to capture inflationary price increases through regulatory frameworks and long-term contracts. For example, the company recently acquired a natural gas transmission business in Brazil from oil giant Petrobras (NYSE:PBR).
One of the draws of that deal was that the company could collect steadily growing cash flow because Petrobras locked 100% of the system’s capacity up under long-term ship-or-pay gas transmission agreements that come with full inflation indexation. That means Brookfield can increase rates with inflation, enabling cash flow to grow steadily.