Brookfield Infrastructure (BIPC +0.00%)(BIP +0.85%) has been an incredible wealth creator over the years. The global-infrastructure giant has delivered a nearly 14% annualized total return since its formation in 2008. The company has grown its funds from operations (FFO) per share at a 15% compound annual rate during the period while increasing its high-yielding dividend at a 9% compound annual rate.
Despite that exceptional track record, Brookfield Infrastructure currently trades at a dirt-cheap price. That makes the company look like a screaming buy, given all the growth it has ahead.
NYSE: BIPC
Key Data Points
A very sustainable income stream
Brookfield Infrastructure pays a very attractive dividend. Its payout is currently approaching 5%. That's several times above the S&P 500's 1.3% dividend yield. At that rate, a $1,000 investment in Brookfield Infrastructure would generate nearly $50 of annual-dividend income (versus only about $13 from an S&P 500 index fund).
That big-time payout is on an extremely firm foundation. Brookfield generates very stable cash flow, with 90% of its FFO backed by long-term contracts or government-regulated rate structures. Meanwhile, 85% of its FFO is either protected from or indexed to inflation.
The company distributes 60% to 70% of its stable cash flow to investors each year in dividends. That reasonable dividend-payout ratio gives it a solid cushion while allowing it to retain cash flow to reinvest in growing its business. Brookfield also has a very strong investment-grade balance sheet, giving it additional financial flexibility.
Visible growth ahead
Brookfield expects its existing portfolio of infrastructure businesses to generate solid organic-earnings growth. Inflation-indexed rate increases and volume growth as the global economy expands should add 4% to 6% to its FFO per share each year. Meanwhile, its reinvested cash flow should add another 2% to 3% to its bottom line each year. The company has a large backlog of organic-expansion projects underway, including several data-center developments and two new semiconductor-fabrication plants it's helping fund for Intel. Brookfield expects its data-center platform alone will grow its FFO by two-and-a-half times over the next three years.
The company's organic-growth drivers should increase its FFO per share by 6% to 9% annually. That easily supports its plan to grow its high-yielding dividend by 5% to 9% per year.
In addition to organic growth, Brookfield expects accretive acquisitions to push its FFO per-share growth rate into the double digits. The company routinely recycles capital to fund higher-return new investments. It recently agreed to buy a larger stake in its Brazilian integrated rail and logistics provider and a portfolio of cell towers in India. It's funding these deals (and its large pipeline of investment opportunities) by selling mature assets, including recently selling the fiber platform within its French telecom-infrastructure business at a strong valuation.
An incredible bargain
Brookfield Infrastructure expects to grow its FFO by more than 10% this year from last year's baseline of $2.95 per share. That implies its FFO will rise to at least $3.25 per share this year. With its stock price recently below $35 per share, Brookfield trades at less than 11 times its forward earnings.
That's a dirt-cheap valuation for a company growing as fast as Brookfield. For perspective, it's a roughly 50% discount to the S&P 500's forward price-to-earnings (PE) ratio of more than 22 times. It's also approaching a price-to-earnings growth (PEG) ratio of 1.0 times, which is a rare find these days.
Potentially powerful total-return potential
Brookfield Infrastructure offers a dividend yield of nearly 5%. On top of that, it expects to grow its FFO per share by more than 10% annually (easily supporting its plan to increase its high-yielding payout by 5% to 9% per year). Those two value drivers alone should give Brookfield the fuel to generate total annualized returns in the mid-teens. Add in its valuation gap, and the total return could be even higher in the future. That upside potential makes Brookfield look like a screaming buy right now.
