One of the most powerful secular tailwinds emerging at this time is the growing global infrastructure gap. What is increasingly clear is that there is insufficient critical infrastructure globally, particularly in developing countries, to meet the demand from growing populations and economic activity.
There is in fact a massive shortfall in spending on infrastructure, which is estimated to be up to US$1 trillion dollars annually, which will lead to even greater demand being placed on existing infrastructure. That deficit can only widen with many governments focused on fiscal responsibility by reducing public spending and reining in budget excesses.
It is here that a tremendous opportunity has been created for the private sector with infrastructure companies such as Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) among the best positioned to fill that gap.
Now what?
Brookfield Infrastructure experienced a monster 2016: revenue surged by an impressive 14% compared to 2015, while net income spiked by a massive 59%. This solid performance can be attributed to the US$2.8 billion deployed during 2016 on organic growth projects and acquisitions.
Key among these deals was its participation in a consortium that completed the needle-moving US$6.5 billion purchase of Australian ports and rail operator Asciano Ltd. This has significantly boosted its exposure to the rapidly expanding economies of China and India.
Brookfield Infrastructure also used the capital deployed to expand its energy business, and this has been a powerful growth driver with funds flow from operations in its energy business almost doubling to US$175 million.
It achieved this massive growth by increasing its exposure to North American natural gas transmission through a deal with midstream energy giant Kinder Morgan. Brookfield Infrastructure also participated in the US$5.2 billion purchase of a controlling interest in a southeast Brazilian natural gas transmission pipeline network from Brazilian energy company Petrobras.
Such impressive growth can only continue.
With US$3 billion in liquidity, Brookfield Infrastructure remains focused on expanding its business through a combination of investing in organic growth opportunities and making further acquisitions.
Then there is its massive exposure to the rapidly growing emerging economies of India, China, Chile, Peru, Colombia, and Brazil. These nations are expected to grow at rapid rates in coming years. When this is combined with rapidly expanding populations and huge domestic infrastructure shortfalls, they will remain powerful growth drivers for Brookfield Infrastructure for years to come.
Brookfield Infrastructure is leading the charge in Brazil with infrastructure investment, which is fast materializing as a powerful growth driver as the country is emerging from its worst economic downturn in a century.
This strong growth has allowed Brookfield Infrastructure to reward investors with yet another distribution increase, effective in March 2017, and represents an 11% increase over the previous year. Impressively, it is also the eighth straight year where Brookfield Infrastructure has hiked its distribution to now reward investors with a juicy 5% yield.
More importantly, with most its cash flows regulated and contractually locked in, Brookfield Infrastructure’s earnings have low volatility, allowing it to fund further acquisitions and ensure the sustainability of its distribution. This is a particularly important characteristic in the challenging operating environment that now exists because of a range of political and economic stressors.
So what?
Brookfield Infrastructure is one of the most attractive dividend-growth stocks available to investors. Not only is it well positioned to benefit from the powerful secular tailwind caused by growing demand for critical economic and social infrastructure globally, but it also possesses a range of characteristics that make it an ideal defensive hedge. That is a particularly important characteristic in a global economic environment riven with economic and political fissures that could blow up at any given moment.
