Brookfield Infrastructure (NYSE: BIPC) (NYSE: BIP) has been a great one dividend stocks since its inception 15 years ago. The global infrastructure manager has increased its payout every yearcausing it to grow at a robust compound annual rate of 9%. That has gave him the fuel to create tremendous value for investors over the years, with early shareholders earning a 6.6x return on their initial investment.
Many investors would do that probably seize the opportunity go back in time so they could buy shares at launch. The good news is that you don’t have to time travel, because Brookfield Infrastructure is currently trading at a historically cheap valuation. Better yet, so are the future growth prospects stronger than ever. That makes now an ideal time to launch a feature or expand an existing one.
A historically cheap share
When Brookfield Infrastructure went public fifteen years ago, it traded at approximately 15.5 times adjusted operating funds (FFO). Over the past decade, it has traded at an average of 16x price-adjusted FFO, with a higher valuation above the latter five years (16.5x).
However, its valuation has declined in recent years, mainly due to the impact higher interest rates to have on companies with a high dividend yield, such as utilities. Higher interest rates make alternative income-generating investments, such as government bonds, more attractive.
As a result, the valuations of yield-oriented instruments tend to fall, causing their dividend yields to rise to entice income-oriented investors. We’ve seen this in Brookfield’s valuation ratio, which has fallen to a historically cheap 14.4x today.
That valuation is even more attractive compared to other utilities. Brookfield Infrastructure currently offers a higher dividend yield (about 5%, compared to roughly 3% for the average utility), even as it expects to grow its payout faster (5%-9% annual target versus the roughly 4% expected average growth rate of that sector). Brookfield also has a lower risk profile (more diversification than utilities and less exposure to the more volatile consumer sector).
Stormy tailwind
Brookfield Infrastructure has grown rapidly over the years by expanding into additional infrastructure platforms to capitalize on three global investment megatrends: decarbonization, deglobalization and digitalization. These catalysts contributed to fuel 15% compound annual FFO per share grow since its inception. It has benefited from strong organic growth engines are asset rotation strategy to pivot his portfolio to better benefit from the three “D” megatrends.
That strategy should yield big profits in the coming years partially to the digitalization trend that far exceeds the wildest expectations. The rise of AI has broader consequences for business operations than expected. Therefore, the general trend will require it A enormous quantity of investment capital to upgrade and grow the infrastructure needed to support this technology. That produces one deep possibilities of potential investments that have far exceeded expectations.
About 60% of business activities should benefit from the megatrend of digitalization. That’s because energy and data are connected. The global economy will need this A enormous quantity of electricity to power data centers and transmit data.
This benefits the company’s ecosystem. It works midstream infrastructure that supplies natural gas to utilities. The company also operates utilities that need to deliver more energy to customers in the future. In addition, Brookfield owns and develops digital infrastructure such as data centers, transmission towers and fiber optic networks, which crucial for the digital age.
These factors determine the company’s belief that its current portfolio is more valuable than the current portfolio It initially adopted. Meanwhile, the range of investment opportunities is enormous and far exceeds previous expectations. That leads the company to believe that the future could be even better than the past.
An incredible opportunity
Brookfield Infrastructure is trading at a historically low valuation today. That discount is complete unfounded. The company’s growth has never had the wind at its back stronger, what it should make possible it wants to grow its profits strongly while at the same time increasing its high-yield dividend above average.
Add in the potential for a valuation increase, and Brookfield Infrastructure could deliver huge total returns in the coming years. That makes it seem like a screaming buy at the moment.
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Matt DiLallo holds positions at Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
A historic buying opportunity: This top dividend stock is currently a screaming bargain. was originally published by The Motley Fool
