What companies come to mind when you think about artificial intelligence (AI)? Most people would probably answer with the names of AI developers such as OpenAI or AI chipmakers like Nvidia.
However, there are many companies outside of the technology sector that are deploying AI. You might not think of them as AI stocks per se, but what they're doing is important. Some of them could even be better picks for investors than the more famous high-flying AI stocks.
I can easily think of one great example. This magnificent high-yield dividend stock is actually an under-the-hood artificial intelligence (AI) play.
You can't spell infrastructure without "A" and "I"
Brookfield Infrastructure (BIP 0.32%) (BIPC +0.00%) is, as its name indicates, an infrastructure company. It owns assets across the world, including cell towers, data centers, pipelines, rail operations, terminals, toll roads, and more.
NYSE: BIP
Key Data Points
You can probably envision how AI might fit into Brookfield Infrastructure's data center operations. However, the company is planning to use AI throughout all its 45 businesses. Brookfield Infrastructure believes that AI will help to generate additional revenue and improve profit margins.
The company already has a success story to tell with one business that it owns -- home warranty provider HomeServe. Over the last couple of years, HomeServe has launched a digital assistant and a fully automated claims process that both use AI.
Since implementing this AI-powered automation, the average call time for repair calls has been reduced by 15% to 20%. Sales, upgrades, and retention rates have increased by 25%. It's not surprising that Brookfield Infrastructure wants to use AI throughout its organization. The company stated at its recent investor day, "Artificial intelligence will significantly enhance the results of our operations-oriented approach to create value for shareholders."
Reasons to buy Brookfield Infrastructure stock
To be sure, AI isn't a top reason to buy Brookfield Infrastructure stock at this point. It could take a while for the company to achieve the benefits from AI that it seeks. However, there are other reasons to buy the stock in the meantime.
Actually, there are two stocks that could be bought. Brookfield Infrastructure Partners, a limited partnership (LP), trades under the BIP ticker. To attract institutional investors who can't invest in LPs and other investors who don't like the tax hassles associated with LPs, the company created another stock, Brookfield Infrastructure Corporation, in 2020. It trades under the BIPC ticker. There's only one underlying business, though.
Income investors should especially love Brookfield Infrastructure's distribution. BIP's distribution yield currently tops 5.4%. BIPC's yield stands at nearly 4.6%. The company has increased its distribution for 14 consecutive years with a compound annual growth rate of around 8%.
Growth investors have something to like about Brookfield Infrastructure, too. The company points to three key tailwinds for infrastructure over the next several decades -- digitalization, deglobalization, and decarbonization. It also has a smart asset rotation strategy in which mature assets are sold at a considerable profit and reinvested in new assets with attractive yields or strong growth potential.
Wall Street recognizes Brookfield Infrastructure's growth opportunities. Of the nine analysts surveyed by Refinitiv in October, seven rate the stock as either a buy or strong buy. The average 12-month price target for Brookfield Infrastructure reflects an upside potential of 50%. Even the most pessimistic analyst surveyed thinks the stock can jump around 24% over the next 12 months.
What's not to like about Brookfield Infrastructure?
Every stock comes with at least a few drawbacks. Brookfield Infrastructure is no exception.
Higher interest rates tend to scare some investors away from capital-intensive stocks such as Brookfield Infrastructure. The company has a significant amount of debt (around $39 billion at the end of the second quarter of 2023). There's also a risk that Brookfield's asset rotation strategy could misfire with an acquisition of an asset that proves to be a big loser over time.
On the other hand, Brookfield Infrastructure has been able to fund its growth in 2023 through asset sales and issuing BIPC shares without taking on additional debt. Its balance sheet remains strong, with an investment-grade BBB+ rating from two agencies. Roughly 90% of the company's debt is long-term with fixed rates. And Brookfield's recent asset sales have delivered excellent returns on investment.
I predict that Brookfield Infrastructure will be a solid winner for income and growth investors over the next decade and beyond. I also expect that the company's increasing use of AI will lead to improved profitability. Brookfield Infrastructure isn't an AI stock, but it's likely to be a stock that benefits from AI.
