Brookfield Infrastructure Partners 2015 Earnings Shows Strong Dividend Growth Likely in 2016

Source: Brookfield Infrastructure Partners

With the stock market off to a terrible start in 2016 many dividend investors are seeking safety in defensive stocks such as utilities. However, in the tradition of "being greedy when others are fearful" let me tell you why Brookfield Infrastructure Partners (NYSE: BIP), one of the world's most diversified and best managed utilities, has been unfairly punished in Wall Street's mad dash for the exits.

BIP Total Return Price data by YCharts

Specifically, let's look at three key facts from Brookfield Infrastructure's full year 2015 results, to see why the LP's growth engine keeps humming along, and why 2016 shows signs of even more potentially strong growth despite the global economic slowdown.

Asset growth leads to strong growth where it counts most

Source: Q4 earnings presentation, Yahoo Finance

Thanks to $808 million in organic growth investment and acquisitions Brookfield Infrastructure Partners was able to deliver very strong growth in Adjusted funds from operations (which is what funds the distribution).

More importantly, 2015's AFFO yield matched 2014's very strong 13%, indicating that management remains extremely disciplined by investing in only those projects and acquisitions that will help grow AFFO per unit and keep its DCR high. That not only helps make the distribution highly sustainable, but also allows the LP to generate significant excess cash flow with which to reinvest into future growth.

Payout profile remains as strong as ever
For income investors the most important aspect of any dividend stock is the payout profile which consists of: the yield, long-term sustainability, and realistic growth prospects.

• Yield: 6.6%

• DCR: 1.38

• Payout Growth Guidance: 5% to 9% CAGR

Brookfield Infrastructure Partners' latest distribution increase of 7.5%

is inline with its long-term growth plans but even so investors should never fully trust growth projections without evidence of a strong growth catalyst. Luckily for Brookfield Infrastructure such a catalyst is clearly evident.

For example, over the next two to three years the LP plans to invest $1.4 billion into expanding its existing assets. This is to be funded largely by retained cash flow which totaled $185 million in 2015.

This growth plan means that management will focus on maintaining a strong and growing excess cash flow reserve, which explains why its latest distribution increase was less than 2014's 10.4% payout hike.

More importantly, management believes that it can achieve long-term growth in funds from operations per unit of 10%, which should mean its future DCR will grow over time and only make its already generous payout that much more secure.

When combined with its already high-yield, Brookfield Infrastructure believes that its 7% average distribution growth should reward long-term investors with 12% to 15% annual returns; far superior to the market's historical 9.1% total returns.

Commodity crash is actually a glorious growth opportunity
While Brookfield Infrastructure's excess cash flow is focused on organic investment, the true key to the lp's long-term growth is its major acquisitions courtesy of its sponsor and general partner Brookfield Asset Management (NYSE: BAM).

Brookfield Asset Management has over 100 years of experience managing global infrastructure and utility assets and over that time its skill and expertise has allowed it to grow its assets under management to over $225 billion.

With such global reach Brookfield Asset Management is able to take advantage of global economic crises to put together extremely profitable deals for Brookfield Infrastructure Partners to acquire quality, cash flow rich assets at highly undervalued levels.

For example, in recent years as the Greek debt crisis has stalled European economic growth and made investing in the continent much cheaper, Brookfield Infrastructure made large investments into European: Toll roads, ports, electric transmission systems, gas distribution systems, and telecom communication towers.

The current commodity crash is similarly a wonderful long-term opportunity to take advantage of recessions in commodity dependent Latin America, and Australia. For example in Q4 2015 Brookfield Infrastructure partnered with a Spanish company to invest in 1,600 km of electric transmission lines in Brazil.

In Australia the LP invested $900 million in Q4 as part of its massive $8.5 billion buyout of port giant Asciano. Meanwhile Brookfield Infrastructure is taking advantage of the oil crash with its recent acquisitions of Niska Gas Partners and its joint venture with Kinder Morgan to takeover Natural Gas Pipeline Company of America.

In order to fund so many acquisitions Brookfield Infrastructure needs massive access to capital. Fortunately the commodity crash hasn't impinged on the LP's ability to do so, with around $2 billion in growth capital being raised in 2015.

Thanks to its recent preferred equity, corporate bond issuances, and a $450 million increase in its corporate lending facility, Brookfield has nearly $3 billion in available buying power to go hunting for more deals in 2016.

Bottom line
2015 proved Brookfield Infrastructure Partners remains on track to continue delivering market crushing total returns over the next five to ten years. Management's focus on disciplined and high AFFO yield, cash flow generating acquisitions, when combined with its strong access to liquidity and world class deal generation courtesy of its sponsor, likely means that Brookfield Infrastructure is poised to profit greatly in 2016.

With the commodity crash leaving many cash flow rich assets around the globe selling at depressed valuations, long-term investors can likely look forward to continued strong payout growth for many years to come.