Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP) and its institutional partners have struck a $9 billion deal to acquire Colonial Enterprises. That company owns the Colonial Pipeline, one of the largest refined products systems in the country. It produces very stable cash flow as gasoline and other refined products flow from Texas to markets along the U.S. East Coast.
That cash flow will support Brookfield Infrastructure's growing high-yielding dividend (4.7% current yield).
Out with the old and in with the new
Colonial Enterprises owns a world-class midstream asset portfolio. The Colonial Pipeline is the crown jewel. That pipeline system spans 5,500 miles, running from the country's refining hub in Houston, Texas to New York's harbor. It transports 100 million gallons of fuel each day, including gasoline, jet fuel, diesel, and heating oil. These refined petroleum products are crucial to fueling the economy along the Eastern Seaboard.
Brookfield Infrastructure expects to invest about $500 million of equity into the acquisition of Colonial (about 15% of the total equity commitment). Brookfield's institutional partners will fund the remaining equity commitment. It's buying Colonial from a consortium of owners that includes oil giant Shell, private equity firm KKR, Koch Industries, and Canadian pension fund CDPQ.
The infrastructure giant is financing its investment via its recently announced capital recycling initiatives. The company recently closed the sale of its remaining 25% interest in the Natural Gas Pipeline Company (NGPL). That sale and recent financings completed on NGPL have generated over $900 million in proceeds for Brookfield over the past 18 months. It's also selling interests in a portfolio of European data centers. The company is now recycling some of this capital to acquire Colonial.
Expect the wheeling and dealing to continue
Brookfield Infrastructure is on track to raise nearly $900 million from its capital recycling initiatives since the beginning of this year. That's part of its target to sell $5 billion to $6 billion of assets over the next two years via its capital recycling strategy. That will give the company even more capital to invest in new, higher-returning opportunities like Colonial as they emerge.
The company expects to remain active in deploying capital into new opportunities this year. CEO Sam Pollock wrote in the company's fourth-quarter letter to investors, "In terms of new deployment, we have entered 2025 with a pipeline of early stage capital deployment opportunities that is the deepest it has been in years."
Accretive acquisitions are only one of the company's growth drivers. It has a large and growing backlog of organic capital projects, including U.S. semiconductor manufacturing investments and data center development projects worldwide. Brookfield also benefits from the growing earnings of its existing assets through inflation-linked contractual rate increases and volume growth as the global economy expands. The company estimates that its organic catalysts will fuel 6% to 9% annual growth in its funds from operations (FFO) per share in the coming years. Meanwhile, it sees accretive acquisitions funded by its capital recycling initiatives (like trading NGPL for Colonial) boosting its FFO per-share growth rate above 10% per year.
That growing cash flow will give the company plenty of fuel to continue raising its dividend. It's targeting to increase its high-yielding payout by 5% to 6% per year. Brookfield has hiked its dividend for 16 straight years, including by 6% earlier this year.
This top-tier dividend stock keeps adding more fuel
Brookfield Infrastructure has done a fantastic job growing its dividend over the years. A key part of its strategy has been to use the proceeds from asset sales to make accretive acquisitions to further boost its growth rate. With a boatload of additional asset sales planned, Brookfield will have plenty of capital to redeploy on higher-returning opportunities like Colonial when they emerge. Because of that, the company should continue adding more fuel to its dividend growth engine, making it a great stock to buy for those seeking a rising income stream.
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Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, and KKR. The Motley Fool has positions in and recommends KKR. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
