This Outstanding Dividend-Yielding Stock Eyeing a Growth Potential in the Developing $8 Trillion Market Sector
Brookfield Infrastructure (BIPC -1.98%, BIP -2.01%) has thrived by investing in the bedrock of the global economy. The company's utilities, energy midstream, transportation, and digital infrastructure assets generate consistent and expanding cash flows. This has enabled the company to boost its dividend for 15 consecutive years, increasing it at an impressive 9% compound annual rate. Over the years, it has distributed over $10 billion to its investors.
The company is well-positioned for future growth. It sees a substantial new investment opportunity emerging in artificial intelligence (AI) infrastructure. It's already expanding its opportunities, which could propel Brookfield Infrastructure to rapid growth in the coming years.
Transitioning towards the largest upcoming growth sectors
CEO Sam Pollock discussed the AI infrastructure opportunity in his third-quarter report to shareholders.
AI infrastructure is becoming a new digitalization-focused asset class, encompassing semiconductor manufacturing, compute-as-a-service, energy management, autonomous transportation, robotics, and more. The total potential market opportunity is over $8 trillion in the next three to five years. Brookfield Infrastructure is well-placed to lead in digitalization and AI Infrastructure, which is a natural progression of its investment strategy, while still adhering to its consistent and disciplined investment criteria.
Brookfield Infrastructure has consistently added new investment platforms over the years to foster its growth. At its inception, it owned electricity transmission assets in Chile, Brazil, and Canada, as well as U.S. and Canadian timberlands. Today, the company manages 45 infrastructure businesses worldwide, focused on the utilities, energy midstream, transportation, and digital infrastructure sectors. Its recent foray into digital infrastructure has positioned it well to capitalize on the digitalization and AI infrastructure investment megatrends. Through a series of acquisitions, it has built a leading global data center platform with over 140 locations, and also owns telecom towers and fiber assets.
Preparing for its next growth phase
Brookfield Infrastructure has significant growth potential ahead. "We have a backlog of nearly $8 billion in organic growth projects," Pollock said. The majority of these projects, totaling $5.5 billion, are in the data infrastructure segment, including a $3.9 billion investment in a U.S. semiconductor facility and $1.2 billion to expand its global data center platform.
In addition, Pollock said: "We have over $4 billion in incremental organic growth projects that our platform businesses are advancing, which represents projects prior to final investment decision or expected development over the next three to five years. This is the highest level of investment activity we have seen within our businesses, and we expect it to accelerate."
Brookfield's optimism stems from its expectation of capturing additional AI infrastructure investment opportunities. The company regularly assesses new investment categories to see if they align with its return criteria and other important factors, such as:
- Essential to society and the overall economy.
- Strong creditworthy counterparties.
- Inflation indexation of contract rates.
- Long-term contracts that provide stable cash flow.
- Minimal to no technological risk.
- High barriers to entry.
Brookfield believes many AI infrastructure categories will meet its investment framework. Potential opportunities include organic expansion projects, similar to its investment in helping fund the construction of two new semiconductor fabrication facilities in the United States. It could also use its access to capital to assist companies in building and expanding their digitalization infrastructure.
Additionally, Brookfield could make acquisitions to create new digitalization investment platforms. In the shareholder report, Pollock wrote:
From a deployment perspective, the growth outlook for our business is strong. Industry trends, including digitalization, decarbonization, and deglobalization, are driving the massive infrastructure super cycle. Our investment pipeline is substantial, and it continues to grow.
The company has ample capital to invest in new opportunities, ending the third quarter with $4.6 billion in liquidity. It also plans to generate $5 billion to $6 billion in proceeds from capital recycling over the next two years, further enhancing its financial flexibility.
Robust growth ahead
Brookfield Infrastructure projects its funds from operations (FFO) to grow at over 10% annually in the coming years. This easily supports its plan to boost its high-yielding dividend, currently around 4%, at a 5% to 9% annual rate. In total, Brookfield could produce annual total returns in the mid-teens. This represents outstanding return potential for a dividend stock, making it a compelling investment option today.
Based on its strong performance and strategic investments, Brookfield Infrastructure is well-equipped to leverage its finance and investing capabilities in the burgeoning AI infrastructure sector. With the potential market opportunity worth over $8 trillion in the next few years, the company is poised to generate substantial revenue and further distribute wealth to its investors.
Given Brookfield Infrastructure's disciplined investment strategy, focusing on essential sectors with strong fundamentals, it is likely that many AI infrastructure categories will meet its investment criteria. By capitalizing on these opportunities through acquisitions, organic growth projects, and assisting companies in building digital infrastructure, the company aims to boost its funds from operations (FFO) at a rate of over 10% annually, while maintaining its high-yielding dividend.
