Brookfield Infrastructure has done an excellent job of increasing shareholder value.
Brookfield Infrastructure (BIPC 0.88%) (BIP 0.48%) recently held its annual Investor Day. The global infrastructure company emphasized at the event that creating value for investors is its top priority.
We’ve certainly been doing that for years. For example, an investor who purchased 100 shares at its inception 15 years ago (an initial investment of $1,900) now owns 225 shares of Brookfield Infrastructure Partners (BIP) limited partnership units worth more than $7,600; You now own 25 shares of Brookfield Infrastructure Corporation (BIPC). For over $1,060. They would also have received a cash dividend of almost $3,940 (thanks to an impressive annual dividend growth rate of 9%). Add it all up and Brookfield has returned investors 6.6x since its founding a decade and a half ago.
The company is well-positioned to continue enriching its investors. Here’s a look at three paths the company is pursuing to create value for investors.
1. Built-in organic growth
Brookfield Infrastructure is investing capital to expand its global infrastructure business. The company currently has $8 billion of growth capital projects secured across its four business segments (Utilities, Transportation, Midstream and Data). Meanwhile, the potential backlog is up to $12 billion.
The company’s data segment currently accounts for the largest portion of its $5.5 billion backlog. The largest project is a $3.9 billion capital investment with Intel to build two semiconductor manufacturing facilities in the United States. The company is also investing $1.2 billion to expand its global data center platform. These investments will enable the company to participate in significant future growth in semiconductor and data center capacity driven by AI. This technology uses five times more semiconductor chip power than non-AI workloads and has the potential to triple data center capacity growth by 2030.
2. Tuck-in investment and additional investment
Brookfield Infrastructure also grows revenues from its existing businesses by making additional investments to increase its interest in existing businesses and by making bulk acquisitions to expand its operations. For example, in 2013, the company and its partners purchased a 27% interest in Brazilian rail and port logistics business VLI, with Brookfield investing $350 million in the $850 million deal. Earlier this year, the company took the opportunity to purchase a 10% incremental stake in the business for $365 million, a discount of more than 20% to the business’ estimated fair value. Since the company is now the largest shareholder, this investment will give it a larger share of the company’s cash flow, while also improving its governance.
Brookfield also made two tuck-in acquisitions this year. The company acquired 40 data center sites from Cyxtera out of bankruptcy, while also purchasing related real estate for several sites from third-party landlords to expand its US retail colocation data center platform. The company first formed its platform in 2018 by acquiring several data centers from AT&T. The company also purchased a portfolio of telecom towers in India from American Tower to expand its platform in India. This follow-on transaction and three additional transactions will increase the company’s annual FFO by approximately $150 million.
2. Mergers and acquisitions
Brookfield’s third growth vehicle is accretive M&A. We plan to acquire scalable platforms should attractive opportunities arise.
For example, last year we participated in the privatization of Triton International. Brookfield Infrastructure has invested $1.2 billion to acquire a 28% interest in a global intermodal logistics business. The company expects the investment will provide significant returns with the opportunity to expand its fleet in the future.
The company expects that M&A activity will become more active in the second half of this year as the interest rate environment improves. Meanwhile, the long-term M&A outlook is also solid, as capital is badly needed to fund growth in several industries. The company sees potential opportunities to buy assets from companies in need of capital (as it did a few years ago when it acquired data centers from AT&T). It also anticipates acquiring companies that don’t have enough internal capital to fund growth, such as power and gas companies.
rich investment
Brookfield Infrastructure expects its trio of drivers to grow FFO per share at more than 10% annually. This should be the driving force behind increasing dividends by 5% to 9% annually. With a dividend yield of nearly 4%, the company could potentially deliver average annual total returns in the mid-teens. This will allow Brookfield to continue delivering on its top priority of growing investor wealth.
Matt DiLallo has positions in American Tower, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, and Intel with the following options: long January 2025 $30 calls on Intel; Long January 2026 $170 call on American Tower, January 2025 $30 put on Intel, short January 2026 $175 call on American Tower, short November 2024 $45 call on Intel; and a $45 short against Intel in October 2024. The Motley Fool has a position in and recommends American Tower. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: A long January 2026 $180 call on American Tower, a short January 2026 $185 call on American Tower, and a short November 2024 $24 call on Intel. The Motley Fool has a disclosure policy.
