Data usage is rising rapidly. That requires more infrastructure to support its movement and storage. Companies will need to invest $1 trillion of capital in the next five years to upgrade global data infrastructure. That's only a fraction of the longer-term investment opportunity in digital infrastructure.
One company increasingly focused on that opportunity is Brookfield Infrastructure (BIPC -1.98%) (BIP -1.91%). It's helping drive outsized growth in the near term and should continue powering the company well into the future. That data-driven growth potential is one of many factors that makes Brookfield Infrastructure look like a streaming buy.
A threefold mega-opportunity
The digitization trend is providing companies with enormous opportunities to invest capital to support the exponential increase in data usage. Brookfield Infrastructure sees a threefold market opportunity:
- Fiber networks: It sees a once-in-a-century investment cycle to upgrade copper wire networks to fiber optic cables.
- Wireless infrastructure: Mobile carriers need more towers and small cell nodes to support the network capacity demands of 5G, the Internet of Things, and artificial intelligence, among other growth drivers.
- Data centers: The world needs to add significantly more data center capacity to support the digital transformation trend of bringing more business processes online.
Brookfield Infrastructure has made investments across all three opportunities in recent years. The company currently operates 162,100 telecom tower and rooftop sites, 13,670 miles of fiber optic cable networks, and 50 data centers.
It recently partnered with digital infrastructure investor DigitalBridge to acquire a 51% interest in GD Towers from Deutsche Telekom valuing it at $17.5 billion. GD Towers operates roughly 36,000 towers in Germany and Australia. It also includes a development pipeline of 5,200 towers that the partners will build over the next five years to suit the needs of Deutsche Telekom. Brookfield and DigitalBridge envision using GD Towers as a platform to acquire additional tower portfolios in Europe to participate in its growth.
Brookfield also acquired Uniti Group through a 50-50 partnership with another infrastructure fund. That company provides fiber-to-the-home in Australia. Its pipeline includes 265,000 ready-to-connect premises and an order book of more than 290,000 additional sites.
These deals will help boost Brookfield's earnings in the near term, while their visible growth prospects will help drive profits higher in the coming years. The company expects its data transmission and distribution businesses to deliver 8% compound annual growth over the next five years, while data storage will grow at a 23% compound annual rate.
But wait -- there's more
Data infrastructure is one of several growth drivers that should power Brookfield in the coming years. The company also sees organic growth catalysts across its three other business segments and its asset rotation strategy fueling robust cash flow growth in the coming years. A combination of inflation-escalation on existing contracts, volume growth, and development projects are driving 10% organic growth in its funds from operations (FFO) per share this year. Meanwhile, its asset rotation strategy of selling mature assets and reinvesting the proceeds into higher-returning investments is powering an additional 10% increase in FFO per share.
Those catalysts should help fuel 12% to 15% FFO per share growth next year. Beyond that, Brookfield expects to organically grow its FFO per share at a 6% to 9% annual rate over the longer term. However, given elevated inflation levels, its exposure to the digitalization megatrend, and its sizable expansion project backlog, Brookfield could grow toward the high end of that range. Meanwhile, there's additional upside potential from its asset rotation strategy.
Despite that visible growth, Brookfield's stock has fallen nearly 15% from its recent high. That's pushed its dividend yield up to 3.2%. The company expects to grow that payout at a 5% to 9% annual rate over the long term. Meanwhile, it's now only trading at about 15 times its 2023 FFO-per-share estimate, which is an attractive price for a company with so much visible growth ahead. It positions Brookfield to produce double-digit total annual returns in the coming years.
Growth and income at a great price
Brookfield Infrastructure has been working hard to capitalize on the digitalization megatrend. That's one of many catalysts that have it on track to grow at a double-digit rate over the next couple of years, with the potential to sustain that pace over the longer term. This upside opportunity makes Brookfield look even more attractive in light of its recent 15% sell-off. Add in its high-yielding and growing dividend, and it seems like a screaming buy these days.
