Brookfield Infrastructure (NYSE: BIP) (BIPC +0.00%) has a simple, threefold investment strategy. The global infrastructure operator:
- Acquires high-quality assets on a value basis.
- Enhances them through operations-oriented management.
- Exits mature assets and recycles the capital into new investments.
The company believes this strategy will help grow its funds from operations (FFO) per share by more than 10% annually over the long term. That should support 5% to 9% annual growth in its dividend, which currently yields 4.1%.
Brookfield's strategy has been on full display this year. It recently unveiled its latest exit transaction, which will give it more capital to make new investments (it already has its sights set on its next deal). These moves position the company for more growth ahead.
NYSE: BIP
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Shaving its stake by a little bit more
Brookfield Infrastructure recently agreed to sell an additional 12.5% interest in Natural Gas Pipeline Company of America (NGPL) to an affiliate of private equity firm ArcLight Capital. The sale will reduce Brookfield's interest in the pipeline company to 25% while boosting ArcLight's to 37.5%. Natural gas pipeline giant Kinder Morgan (KMI 2.20%) owns the other 37.5% interest and operates NGPL.
NGPL is a textbook example of Brookfield's acquire, enhance, and exit strategy. The company teamed up with Kinder Morgan to acquire a majority interest in NGPL in 2015. Kinder Morgan paid $136 million to boost its interest from 20% to 50%, while Brookfield spent $106 million to increase its stake from 27% to 50%. The transaction valued NGPL at $3.4 billion.
After taking control, the companies enhanced NGPL's operations and completed several expansion projects. In 2021, Brookfield and Kinder Morgan sold a 25% interest in the company to ArcLight for $830 million. That sale valued NGPL at $5.2 billion.
Brookfield is continuing its phased exit of the business by selling another interest to ArcLight. That will give it some incremental capital to recycle into new opportunities.
NYSE: KMI
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That sale is the continuation of the company's ongoing capital recycling program. Brookfield most recently sold two gas storage assets in the U.S., raising a total of $100 million. The company expects to continue actively selling assets this year, targeting to raise about $2 billion to fund new investments.
Eyeing its next acquisition
Brookfield is quickly putting that capital back to work. It has already locked up two new investments this year after securing $2.9 billion of new investments across five deals last year. It agreed to invest $600 million to acquire the European data center platform Data4.
Brookfield is also investing $1 billion into privatizing container leasing company Triton International. It's issuing $900 million in stock to help finance that acquisition, freeing up its cash for other potential deals.
The company already has its eyes on its next target. Reuters reported last month that it's bidding to buy Compass Data Centers. It's competing against data infrastructure investor DigitalBridge for Compass in a deal that could top $5.5 billion.
Adding Compass would further expand Brookfield's global data infrastructure platform, which is already getting a boost by adding Data4. Compass is also part of the company's robust pipeline of new investment opportunities.
CEO Sam Pollock commented on the first-quarter earnings call: "We have lots of flexibility and capacity to look at high-value opportunities that are out there today. We continue to monitor a couple of situations, and to the extent that we think they can be additive to our business, we'll look to pursue something over the next couple of months." He further noted on the call that the company is seeing lots of opportunities in high-quality markets like North America and Europe.
Brookfield's strategy pays dividends
Brookfield Infrastructure's buy-enhance-sell strategy continues to pay off. It has helped the company to grow its FFO per share at an 11% annual rate over the last decade, which has supported 9% compound annual dividend growth.
The company expects to continue growing at a double-digit rate in the coming years, supported by more capital recycling. It continues to sell assets at attractive values, giving it more cash to invest in new higher-return opportunities, which it's having no trouble finding.
That income and growth combo should enable Brookfield Infrastructure to continue generating strong total returns. It makes Brookfield a great stock to buy and hold for the long term.
