In late 2017, Brookfield Infrastructure Partners (NYSE:BIP) identified the data infrastructure sector as one that it planned to focus on in the coming years. At the time, CEO Sam Pollock stated that "data is the fastest-growing commodity in the world, with global usage growing exponentially, which requires massive investment in networks to store and transmit it, like fiber and telecom." Because of that, the company had already started investing in the sector by acquiring communications towers in France. However, it aimed to build out a much more robust portfolio of data infrastructure businesses so that it could benefit from the sector's growth.
It has since acquired several data infrastructure businesses, including recently agreeing to buy a portfolio of communications towers in India and Cincinnati Bell (NYSE:CBB), which operates a leading fiber-optic network in North America. These deals will not only provide an immediate boost to its cash flow but also enhance its growth prospects. As a result, Brookfield should have no problem continuing to grow its 4.1%-yielding dividend.
Betting big on data
Brookfield Infrastructure has announced a string of data-related deals over the past year and a half:
- In June of 2018, it formed a strategic alliance with AT&T (NYSE:T) to acquire several data centers in the U.S., investing about $160 million in the transaction.
- A few months later, it formed a joint venture with Digital Realty (NYSE:DLR) to operate Ascenty, which is a leading data center in Brazil that Digital Realty acquired, investing about $200 million in the business.
- The company also completed a smaller $50 million deal to buy an Asia Pacific data center business.
- It formed another strategic partnership earlier this year to acquire an integrated data communications provider in New Zealand, investing about $200 million in the deal.
As a result of these transactions, the company's data infrastructure business now consists of about 7,000 multipurpose towers and active rooftop sites and around 6,200 miles of fiber optic cable in France and New Zealand and 50 data centers in the U.S., Brazil, and Australia.
That portfolio, however, will soon expand now that Brookfield has secured deals to buy two more data infrastructure companies. The first deal is the acquisition of a telecom tower company in India. Brookfield and its partners are paying about $3.7 billion -- with Brookfield investing $375 million -- for 130,000 sites. These towers support the operations of leading mobile operator Reliance Jio, which signed a 30-year contract to anchor the portfolio. As such, it will generate predictable cash flow for the company.
Brookfield, along with its partners, is also buying Cincinnati Bell for about $2.6 billion. That company operates a leading data transmission and distribution network in Cincinnati, Ohio, and Hawaii backed by more than 17,000 miles of fiber. This business enables Cincinnati Bell to provide "utility-like services for broadband and data, generating stable and growing cash flows," according to Brookfield.
Thanks to the stable cash flow these two companies produce, they'll provide an immediate boost to Brookfield's earnings when it closes the two transactions over the next year. However, that initial increase is only part of the draw. The other attraction is that both businesses come with visible organic expansion opportunities, which will enhance Brookfield's growth profile.
The Indian tower portfolio, for example, has two notable growth drivers. First, Brookfield expects to build another 45,000 towers to support Reliance Jio's growth as it benefits from India's rapidly expanding data industry. In addition to that, Brookfield plans to add more tenants to the towers, which currently only carry Jio's equipment. Most towers can hold multiple tenants, which gives Brookfield lots of running room.
Cincinnati Bell, meanwhile, has upgraded about 50% of its network in recent years to support growing data demand as well as the coming transition to 5G. The company expects to continue enhancing its system over the next few years so that it can support growing data demand.
These organic expansion opportunities will enable Brookfield to continue growing its earnings at an above-average rate. In 2020, for example, the company expects to deliver organic growth toward the top end of its 6% to 9% annual range thanks to the acquisitions it completed in the past year. That high-end pace will likely continue in future years thanks to the upcoming additions of Cincinnati Bell and Reliance's tower portfolio. As such, Brookfield could deliver dividend growth near the top end of its 5% to 9% annual target range.
An exciting way to invest in data
Brookfield Infrastructure has invested heavily in building out a global data infrastructure business and has put itself in an excellent position to benefit from the rapid growth of data usage in the coming years. That should enable the company to grow its cash flow and dividend toward the top end of its forecast range, setting it up to potentially generate higher total returns for its investors.