Anticipated Top Dividend Share Expects Massive $100 Trillion Investment Mega-Cycle to Fuel Long-Term Expansion for Extended Periods
Brookfield Infrastructure (BIPC shedding -0.89%, BIP plummeting -1.88%) has emerged as a standout dividend stock since its establishment 15 years ago. This global infrastructure operator has consistently boosted its payouts each year, growing them at a 9% compound annual rate. Even more impressively, its funds from operations (FFO) per share has expanded at a remarkable 15% compound annual rate.
The company anticipates strong expansion in the upcoming years. This optimism stems from the colossal investment boom it foresees for global infrastructure.
Setting the stage
CEO Sam Pollock discussed the global infrastructure investment panorama in his third-quarter letter to investors. In the correspondence, he stated, "Over the next 15 years, we estimate that the world needs around $100 trillion to maintain, upgrade, and construct infrastructure." This is a mind-boggling amount of investment. Key drivers shaping this belief include "benefits from artificial intelligence (AI) and the related power demand," wrote Pollock.
Two dominant themes are at play. The first is the enormous expansion of digital infrastructure to sustain AI. Pollock explained, "AI infrastructure is evolving into a new digitalization-themed asset class, incorporating semiconductor manufacturing, compute-as-a-service, energy management, autonomous transportation, robotics, and more. Collectively, this represents a potential market opportunity of over $8 trillion over the next 3-5 years."
The second theme relates to the first. Pollock underscored, "As the demand for AI usage climbs, so does the power demand, with AI chips potentially requiring up to five times the power of standard chips." These chips will reside in enormous data centers, necessitating vast amounts of electricity. Given environmental concerns, this power should stem from less carbon-intensive sources such as natural gas and renewables.
Capitalizing on both sides of the trend
Few companies are better poised to capitalize on this $100 trillion investment megatrend than Brookfield Infrastructure. This globally diverse infrastructure company manages utilities, energy midstream, transportation, and data infrastructure assets. Over 60% of its FFO currently originates from businesses that will profit from digitalization and decarbonization trends.
These trends are already spurring new growth opportunities for Brookfield Infrastructure. Pollock wrote:
Embedded within our business is a substantial backlog of organic growth projects worth almost $8 billion. Furthermore, we have over $4 billion in upcoming organic growth projects that our platform businesses are pursuing, which encompass our "shadow backlog" and represent projects that have not yet reached final investment decision or are expected to be developed over the next 3-5 years. This is the highest level of investment activity observed within our businesses, and we expect it to escalate.
Data infrastructure projects now account for the majority of its secured backlog at $5.5 billion. This includes investing $3.9 billion into two U.S. semiconductor fabrication facilities that Intel is constructing. Brookfield is also investing $1.2 billion to expand its global data center platform. Furthermore, the company is investing capital to expand its utilities platform and midstream operations to accommodate the escalating demand for natural gas.
Beyond its organic growth drivers, Brookfield anticipates continuing to reinvest capital into new investment opportunities boasting higher long-term growth potential. It has hit its objective of securing $2 billion in proceeds from capital recycling activities this year and expects to generate another $5 billion to $6 billion over the next two years. This will provide it with the resources to capitalize on new investment opportunities it sees ahead. Pollock noted:
From an investment standpoint, the growth perspective for our business is robust. Industry trends are better than ever, with digitalization, decarbonization, and deglobalization driving the massive infrastructure boom. Our investment pipeline is as considerable as it has been in two years, and it is continuing to grow.
Robust growth ahead
Brookfield believes these catalysts should propel substantial cash-flow growth in the ensuing years (10%+ FFO per share growth annually). This will empower it to maintain its nearly 4%-yielding dividend, which it aims to grow by 5% to 9% per year. This income, coupled with the robust growth rate, could easily help it generate total annual returns in the mid-teens over the long term. This makes it look like an excellent stock to invest in and hold to reap rewards from this investment boom.
The company's optimism about robust expansion in the future is largely due to the anticipated $100 trillion investment boom in global infrastructure. This boom is expected to stem from the need for maintaining, upgrading, and constructing global infrastructure over the next 15 years, driven by benefits from artificial intelligence and the related power demand.
Given this investment megatrend, Brookfield Infrastructure, with its focus on utilities, energy midstream, transportation, and data infrastructure assets, is well-positioned to capitalize on this opportunity. The company currently derives over 60% of its FFO from businesses that will profit from digitalization and decarbonization trends, and it plans to reinvest capital into new investment opportunities with higher long-term growth potential.
