Brookfield Infrastructure Partners (BIP 2.28%) has done a phenomenal job of creating value for its shareholders over its first decade as a public company. Overall, it has produced an average annual total return of 19%, which has obliterated the market. To put that into perspective, it would have turned a $10,000 initial investment into nearly $57,000. While that isn't enough to allow an investor to retire early, it's a nice boost to any nest egg.
However, given the power of compound growth, it is possible that Brookfield could turn not only its early investors into millionaires but those who buy today. For that to happen, though, the company would need to maintain its growth rate for many more years.
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The math to $1 million
Given enough time and rate of return, it's possible to turn even a small initial investment into $1 million. For example, an investment of $1,000 can turn into $1 million in as little as 45 years if it can generate an average annualized return of 16.6%. That would be a particularly ambitious path to attempt, though, since the S&P 500's annual return has averaged 9.8% over the past 90 years. Based on that, a more probable scenario would see that $1,000 become $1 million in about 75 years.
Of course, a larger initial investment could turn into $1 million much quicker. For example, $10,000 invested in Brookfield Infrastructure shares could grow into $1 million in as little as 27 years if the company maintains its 19% annualized rate of total return. While that is a tall order, it's not out of the question, given the company's long-term growth prospects.
The sound foundation is already in place
Since 2009, Brookfield Infrastructure has increased its earnings per unit from $0.69 to $3.20, which is an almost 19% compound annual growth rate. The company has consistently demonstrated its ability to acquire infrastructure assets at good prices, then maximize their value by improving their operations and expanding them to grow cash flow. Further, it's currently in the process of investing up to $1.8 billion to acquire six infrastructure businesses around the world, which will immediately boost its earnings run-rate to $3.60 per unit, or about 20% from its current annualized level.
With that foundation, Brookfield Infrastructure believes it has enough organic growth embedded in its portfolio to increase earnings per unit at a 6% to 9% annual pace over the long term. Add that growth rate to the company's distribution, with today yields 4.7%, and the stage is set for Brookfield to generate total annual returns of 11% to 14% without making another deal.
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A massive opportunity set to move the needle further
However, it's unlikely that Brookfield Infrastructure's deal-making days are in the rearview mirror, given the growing need for energy infrastructure across the globe. In the U.S. alone, the company estimates that the petroleum sector will need to invest more than $100 billion building new midstream infrastructure through 2021, and spend more than $40 billion on simplifying the sector's complex web of MLPs. In addition to that, the company sees opportunities to buy government-owned pipelines and liquified natural gas (LNG) terminals in India, invest in infrastructure in Mexico to support an estimated $100 billion in capital spending on developing new onshore and offshore oil and gas fields, and to build new LNG facilities in Australia, or consolidate ownership interests in existing ones there.
Meanwhile, the company also sees large opportunities in data and water infrastructure. Brookfield recently made two data deals, investing in 31 data centers built by AT&T, and partnered on a joint venture with Digital Realty (DLR 0.21%) to acquire Ascenty, a leading data center operator in Brazil. The JV has significant growth potential since it has six facilities under construction, with plenty of upside beyond that given the demographic and macro trends in Latin America. In addition to data centers, Brookfield continues to seek out communications tower acquisitions in markets like India.
Finally, Brookfield has ample opportunities to keep expanding its utilities and transportation platforms. It recently made a small investment in Colombia's second-largest natural gas distribution system, and has acquired ports and toll roads in Australia, India, and Brazil. With a large pool of infrastructure poised to move from government hands into private ownership in the coming years, Brookfield should have ample choices from which to add to both of those platforms.
Patient investors could be richly rewarded
Brookfield Infrastructure has generated fantastic returns for shareholders over the past decade. If it can keep up this pace, investors who bought $10,000 worth of its units around its debut could be millionaires in as little as 17 more years. Meanwhile, those who invest that same sum today could see their stakes hit a seven-figure value in 27 years, again assuming the company maintains its historic rate of return. While that's a tall order, it's not beyond Brookfield's ability, given its solid foundation of embedded growth and ample opportunities to make additional needle-moving acquisitions.
