potentiallyoutstanding investment in infrastructure sector's stock for the upcoming decade.
Many companies would feel blessed to operate in an industry influenced by a single megatrend. These tailwinds could boost earnings growth for years, but Brookfield Infrastructure takes it to another level. This globally recognized infrastructure leader is capitalizing on not just one, but three colossal global megatrends: decarbonization, deglobalization, and digitalization. These forces compel the world to invest an astonishing $100 trillion in infrastructure over the next 15 years. And with its industry dominance, Brookfield could be an exceptional investment for the coming decade.
Multiple growth engines
Brookfield Infrastructure believes that three organic growth drivers will boost its Funds from Operations (FFO) by 6% to 9% annually per share.
- Inflation Regulation: Brookfield's businesses generate highly stable cash flow due to long-term contracts and government-regulated rate structures with inflation indexation. This mechanism will boost FFO per share by 3% to 4% each year.
- Economic Growth: Brookfield anticipates that a growing global economy will drive volume growth across its portfolio, contributing 1% to 2% to its FFO per share annually.
- Organic Expansion: By retaining the remaining 40% to 30% of its stable cash flows, Brookfield funds high-return organic expansion projects, which should add an additional 2% to 3% in annual FFO per-share growth.
Beyond these internal growth engines, Brookfield recycles capital from asset sales to fund higher-returning investments, such as additional projects and accretive acquisitions. The company boasts an $8 billion backlog of capital projects, including data center developments, U.S. semiconductor facilities, transport expansions, and utility growth projects. Its pipeline of future opportunities looks promising, as CEO Sam Pollock put it, "We have entered 2025 with a pipeline of early-stage capital deployment opportunities that is the deepest it has been in years."
An attractive dividend
A strong growth profile is not the only allure of Brookfield Infrastructure. It also offers a generous and consistently increasing dividend. Currently, the payment yields over 4%, well above the S&P 500's dividend yield of approximately 1.2%.
Brookfield has a stellar track record of boosting its dividend for 16 consecutive years, outperforming its 5% to 9% annual targeted growth rate in every year since its inception. Its dividend has grown at a robust 9% compound annual rate during this period.
A compelling investment at a discount
Despite Brookfield's rapid growth, its valuation is not inflated. Its forward FFO of $3.12 per share translates into a $40 share price, implying a valuation of less than 13.5 times.
For comparison, the S&P 500 currently trades at nearly 26 times earnings, while the Nasdaq-100 index is over 34 times earnings. Given its growth potential, Brookfield should trade at a higher premium. The stock's discounted valuation is a significant factor contributing to its high dividend yield.
Enhanced value prospects
With its megatrend-driven growth catalysts, Brookfield Infrastructure could grow its FFO per share at a rate exceeding 10% annually for years to come. This, coupled with its attractive high-yielding and steadily growing dividend, positions the company to deliver total returns of around 15% per year. Furthermore, the potential for its valuation multiple expansion adds even more upside to its total return potential, making Brookfield Infrastructure a potentially outstanding investment for the coming decade.
Enrichment Data:
Overall:
Brookfield Infrastructure's expected FFO growth rates are diversified across multiple factors.
- Inflation: Approximately 85% of Brookfield's FFO is indexed to or protected from inflation, contributing 3% to 4% annual growth due to its agreements with long-term contractors and government rate structures.
- GDP Growth: Brookfield's exposure to GDP growth adds 1% to 2% annually to its FFO per share. Its cash flows are closely tied to changes in GDP, making it a beneficial investment in a growing economy.
- Organic Growth: Brookfield's strategy of reinvesting cash flow from asset sales and organic projects boosts its FFO growth. It has an impressive pipeline of capital projects, including data infrastructure investments, which will contribute an additional 2% to 3% annual growth as these projects are completed.
The combined impact of these factors helps Brookfield Infrastructure achieve an anticipated FFO growth rate of 6% to 9% annually without additional capital investment. With its new investments, the company anticipates that its FFO growth rate could exceed 10% per annum.
- Brookfield Infrastructure's belief in organic growth engines is driven by three factors: inflation-regulated cash flows, economic growth, and organic expansion, which collectively contribute to a projected annual FFO per share growth of 6% to 9%.
- The company's extensive $8 billion pipeline of capital projects, including data center developments and utility growth projects, offers a promising outlook for future investments.
- Brookfield's attractive dividend, currently yielding over 4%, is significantly higher than the S&P 500's dividend yield, reinforcing its status as an appealing investment option.
- With a megatrend-driven growth potential, Brookfield Infrastructure is poised to deliver total returns of approximately 15% per year, factoring in FFO growth exceeding 10% and potential valuation multiple expansion.
