This Infrastructure Stock Could Be the Best Investment of the Decade

Many companies would consider themselves fortunate to operate in an industry that benefits from just one megatrend. The support from such a trend can lead to above-average earnings growth for many years.

Brookfield Infrastructure (BIPC) (BIP) is a standout example as it thrives on not just one, but three significant global megatrends: decarbonization, deglobalization, and digitalization. These trends contribute to the staggering estimate that the world must invest around $100 trillion in infrastructure over the next 15 years. With its commanding presence in the industry, Brookfield Infrastructure is poised to be one of the best investment opportunities of the next decade, leveraging massive infrastructure investment prospects.

Multiple Growth Drivers

Brookfield Infrastructure envisions that three main organic drivers will facilitate its funds from operations (FFO) growth by an annual rate of 6% to 9% per share. These drivers consist of:

• Inflation Indexation: The company's infrastructure businesses generate stable cash flow backed by long-term contracts and government-regulated rate structures. Many of these contracts link pay rates to inflation, providing a boost to its FFO per share by approximately 3% to 4% yearly.
• GDP Growth: Brookfield expects that a growing global economy will boost volume growth across its portfolio, contributing an additional 1% to 2% to its FFO per share each year.
• Reinvested Cash Flow: The company distributes 60% to 70% of its stable cash flow in dividends while retaining the rest to fund high-return organic expansion projects, projected to add another 2% to 3% annual FFO per-share growth.

In addition to organic growth, Brookfield also recycles capital from asset sales to invest in higher-return projects, including further capital projects and strategic acquisitions. The company currently holds an $8 billion backlog of capital projects, which includes various data center development initiatives, two U.S. semiconductor fabrication facilities, expansions in transportation, utility growth projects, and midstream energy expansions. Furthermore, there is an additional $4 billion worth of projects under development.

These initiatives are just the beginning. Brookfield anticipates capturing a significant share of future infrastructure investment opportunities through new capital projects and acquisitions. As CEO Sam Pollock mentioned in his fourth-quarter letter to investors, “we have entered 2025 with a pipeline of early-stage capital deployment opportunities that is the deepest it has been in years.” This ongoing growth potential strengthens the company's belief that it can increase its FFO per share at an impressive annual rate of over 10% in the upcoming years.

A Compelling Income Stream

Brookfield Infrastructure's robust growth profile enhances its overall value proposition. It offers a high-yield, steadily rising dividend, currently exceeding 4%, significantly higher than the broader average (the S&P 500's dividend yield is around 1.2%).

The company boasts an impressive record of increasing its dividend, achieving a consecutive rise for 16 years. During this period, it has enhanced its dividend at a 9% compound annual growth rate and aims for a future annual increase of 5% to 9%. This consistent growth positions Brookfield Infrastructure as a potentially reliable and increasing source of returns for investors.

An Attractive Valuation

Typically, companies like Brookfield Infrastructure, with strong growth prospects, are valued at a premium. However, this does not currently apply to Brookfield. The company reported an FFO of $3.12 per share last year and, with its stock price hovering above $40, it trades at a valuation of around 13.5 times its FFO.

This is considerably low in comparison to the broader market, where the S&P 500 trades at nearly 26 times earnings, and the Nasdaq-100 index exceeds 34 times earnings. Given its exceptional growth profile, Brookfield Infrastructure is likely undervalued in the market, which underscores the high dividend yield.

A Trio of Value Enhancers

Brookfield Infrastructure's positioning, driven by significant megatrends, supports projections for earnings growth exceeding 10% annually over the coming years. Coupled with a dividend yield of over 4% that is expected to continue its growth, these elements position the company to potentially deliver total returns around 15% annually. Moreover, investors may see added value from an expansion in its valuation multiple. This remarkable total return potential could categorize Brookfield as one of the most appealing investments over the next decade, especially when accounting for its lower risk profile.

Investment, Growth, Infrastructure