Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) has been an incredible wealth creator over the years. The global infrastructure giant has delivered annualized total returns of nearly 14% since its inception in 2008. The company has grown its funds from operations (FFO) per share at a compound annual rate of 15% during the period while the high-yield dividend is increased at a compound annual rate of 9%.
Despite that exceptional track record, Brookfield Infrastructure currently trades at a dirt cheap price. That makes the company looks like a screaming purchaseconsidering all future growth.
A very sustainable income stream
Brookfield Infrastructure pays a very attractive dividend. The payout is currently approaching 5%. That is several times above S&P500‘S 1.3% dividend yield. At that rate, a $1,000 investment in Brookfield Infrastructure would generate almost $50 in annual dividend income (versus only about $13 from an S&P 500 index fund).
That big payout has begun an extremely sturdy one foundation. Brookfield generates terribly stable cash flow, with 90% of its FFO supported by long-term contracts or government-regulated rate structures. Meanwhile, 85% of the FFO is protected against or indexed for inflation.
The company distributes 60% to 70% of its stable cash flow to investors every year of dividends. That reasonable dividend-to-payout ratio gives the company a solid cushion, while at the same time allowing it to maintain cash flow to reinvest in growing its business. Brookfield has that too a terribly strong investment-grade balance sheet, giving it additional financial flexibility.
Visible growth ahead
Brookfield expects its existing portfolio of infrastructure companies to generate solid organic earnings growth. Inflation-indexed interest rate increases and volume growth as the global economy grows should add 4% to 6% to FFO per share each year. Meanwhile, reinvested cash flow should add another 2% to 3% to operating income each year. The company has a large backlog of organic expansion projects in progress, including several data center developments and two new ones semiconductor-factories it helps finance Intel. Brookfield expects its data center platform alone to grow FFO by two and a half times over the next three years.
The company’s organic growth engines should increase FFO per share by 6% to 9% annually. That easily supports the plan to grow the high-yield dividend at 5% to 9% per year.
In addition to organic growth, Brookfield expects acquisitions to push its FFO per share growth rate into double digits. The company routinely recycles capital to finance new investments with higher returns. It recently agreed to purchase one taller stake in its Brazilian integrated rail and logistics services provider and a portfolio of cell towers in India. It finances these deals (and the associated… big pipeline of investment opportunities) by selling mature assets, including recently the sale of the fiber optic platform within its French telecom infrastructure business at a price of EUR 1.25 strong valuation.
An incredible bargain
Brookfield Infrastructure expects to grow its FFO more than 10% this year from last year’s baseline of $2.95 per share. That means FFO will rise to at least $3.25 per share this year. With its stock price recently below $35 per share, Brookfield is trading at less than 11 times forward earnings.
That’s a dirt-cheap valuation for a company growing as fast as Brookfield. For perspective, it’s about a 50% discount to the S&P 500’s future price-earnings ratio (PE). of more than 22 times. It’s also approaching one price-to-earnings growth (PEG) ratio of 1.0 times, that is a rare find nowadays.
Potentially powerful total return potential
Brookfield Infrastructure offers a dividend yield of almost 5%. Furthermore, it expects to grow its FFO per share by more than 10% annually (easily supporting its plan to increase its high-yield payout by 5% to 9% annually). These two value drivers alone should give Brookfield the fuel to generate annualized total returns in the mid-teens. Add in the valuation difference and the total return could be even higher in the future. That upside potential makes Brookfield look like a screaming buy right now.
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Matt DiLallo holds positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel and has the following options: long January 2025 $30 calls on Intel, short January 2025 $30 puts on Intel, and short June 2024 $50 calls on Intel. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
Do you have $1,000? This high-yield dividend stock is such a screaming buy right now, originally published by The Motley Fool
