Brookfield Infrastructure (BIPC -0.35%) (BIP -0.69%) is far from a household name. The company doesn’t sell any well-known consumer products. It also hasn’t developed the latest breakthrough technology.
However, you likely wouldn’t be able to buy those products or access technology without Brookfield Infrastructure. It operates the critical global infrastructure networks that facilitate the flow of energy, freight, water, data, and passengers. Those crucial infrastructure assets produce strong and growing cash flows, which have helped the company deliver robust total returns for its investors over the long term. Because of that, this hidden gem could help boost the value of your portfolio in the future.
A strong foundation
Brookfield Infrastructure is a leading global operator of premier utility, energy midstream, transportation, and data infrastructure businesses. Its utilities transmit natural gas and electricity to customers, while its railways, toll roads, and containers help facilitate the movement of goods worldwide. Meanwhile, its telecom towers, fiber optic cables, and data centers transmit and store information crucial to the technology sector and our modern lives.
The company’s infrastructure generates very stable cash flow. About 85% of its funds from operations (FFO) comes from long-term contracts or government-regulated rate structures, with 75% of the total having no volume or price exposure.
Brookfield Infrastructure pays out 60% to 70% of its cash flow in dividends. The company’s payout currently yields over 4.4%. That dividend income provides investors with a very nice base return.
A history (and future) of growth
Brookfield’s portfolio of infrastructure businesses has delivered high-powered growth over the years. The company’s FFO has risen at a 15% compound annual rate since its formation in 2009, which has supported a 9% compound annual dividend growth rate. It has benefited from organic growth drivers like inflation-driven rate increases, volume growth as the economy has expanded, and expansion projects. Brookfield also has an excellent record of making accretive acquisitions.
The company’s growing earnings and dividend income have created a lot of value for shareholders. It has delivered a 13% annualized total return since it came public, which has outpaced the S&P 500‘s 10.5% average annual total return. At that rate, Brookfield has grown a $1,000 investment made when it came public into over $8,150. That compares to $5,775 for a similar investment in an S&P 500 index fund during that period.
Brookfield Infrastructure is in an excellent position to continue growing shareholder value. The company has positioned its infrastructure portfolio to capitalize on three major global investment megatrends: deglobalization, decarbonization, and digitalization. Brookfield estimates that the world will need to invest about $100 trillion over the next 15 years to maintain, upgrade, and build new infrastructure, including $8 trillion over the next three to five years on AI-related infrastructure.
The company expects to capture a meaningful share of this massive investment opportunity. It has a record backlog of nearly $8 billion in organic expansion projects. In addition, it has over $4 billion of incremental organic expansion opportunities under development. Meanwhile, its early stage pipeline of capital projects and acquisition opportunities is currently the deepest it has been in years. The company has a strong financial profile to capture future growth opportunities, which it routinely replenishes through the sale of mature assets to recycle that capital into higher-returning new investments.
Brookfield’s robust investment potential drives its view that it can grow its FFO per share at a more than 10% annual rate for the foreseeable future. That should enable the company to increase its dividend within its 5% to 9% annual target range.
High total return potential from an underappreciated source
While most investors have probably never heard about Brookfield Infrastructure, its assets are part of the backbone of the global economy. Because of that, it generates stable and growing cash flow. Meanwhile, the need for infrastructure investment is immense, which should support the company’s continued growth. Add in its high-yielding and steadily rising dividend, and Brookfield Infrastructure should be able to continue producing robust returns.
Matt DiLallo has positions in Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.