This Fantastic Dividend Stock Is Looking to Expand Into an Emerging $8 Trillion Market Opportunity | The Motley Fool

Brookfield Infrastructure (BIPC 0.58%) (BIP 0.44%) has made a nice living investing in the backbone of the global economy. The company’s utilities, energy midstream, transportation, and data infrastructure assets generate stable and growing cash flows. That has enabled the company to increase its dividend in all 15 years since its formation, growing its payout at a fantastic 9% compound annual rate. It has distributed over $10 billion in cash to its investors throughout the years.

The company should have no trouble continuing to grow in the future. It sees a massive new investment opportunity emerging in AI infrastructure. It’s already accelerating its expansion opportunities, which could enable Brookfield Infrastructure to grow rapidly in the coming years.

Evolving toward the biggest new growth opportunities

CEO Sam Pollock wrote about the AI infrastructure opportunity in his third-quarter letter to investors:

AI infrastructure is emerging as a new digitalization-themed asset class encompassing semiconductor manufacturing, compute-as-a-service, energy management, autonomous transportation, robotics, and more. Combined, this represents a potential market opportunity of more than $8 trillion over the next three to five years. We are strongly positioned to be the leader in digitalization and AI Infrastructure, which is a natural evolution of our investment perimeter, while retaining our consistent and disciplined investment criteria.

Brookfield Infrastructure has routinely added new investment platforms over the years to enhance its ability to grow. For example, at its formation, Brookfield Infrastructure owned electricity transmission assets in Chile, Brazil, and Canada, as well as timberlands in the U.S. and Canada. Today, the company owns 45 infrastructure businesses worldwide focused on the utilities, energy midstream, transportation, and data infrastructure sectors. The company’s more recent move into data infrastructure has put it in an excellent position to capitalize on the massive digitalization and AI infrastructure investment megatrends. Through a series of acquisitions, Brookfield has built a leading global data center platform with over 140 locations. It also owns telecom towers and fiber assets.

Setting the stage for its next phase of growth

Brookfield has a lot of growth ahead. “Embedded within our business is a record backlog of organic growth projects of nearly $8 billion,” Pollock said. The majority of those projects, totaling $5.5 billion, are in its 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.

On top of that, Pollock said: “We additionally have over $4 billion of incremental organic growth projects that our platform businesses are advancing, which comprise our ‘shadow backlog’ and represent projects that have not yet reached final investment decision or are expected to be developed over the next three to five years. This is the highest level of investment activity seen within our businesses, and we expect it to accelerate.”

Driving its optimism is the expectation that it will capture additional AI infrastructure investment opportunities. The company routinely evaluates the suitability of new investment categories to see whether 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 generate stable cash flow.
• Limited to no technological risk.
• High barriers to entry.

The company believes many AI infrastructure categories will meet its investment framework. Opportunities include organic expansion projects that could be similar to its investment to help fund the construction of two new semiconductor fabrication facilities in the United States. It could leverage its access to capital to help companies build and expand their digitalization infrastructure.

On top of that, Brookfield could make acquisitions to build new digitalization investment platforms. Pollock wrote in the shareholder letter:

From a deployment perspective, the growth outlook for our business is strong. Industry trends are better than ever, with digitalization, decarbonization, and deglobalization driving the massive infrastructure super cycle. Our investment pipeline is as big as it’s been in two years, and it continues to grow. 

The company has an abundance of capital to deploy into new investment opportunities, ending the third quarter with $4.6 billion of liquidity. Meanwhile, it plans to generate $5 billion to $6 billion in proceeds from capital recycling over the next two years, further enhancing its financial flexibility.

Ample growth ahead

Brookfield Infrastructure expects to grow its funds from operations (FFO) at a more than 10% annual rate in the coming years. That easily supports its plan to increase its high-yielding dividend, which recently sat at around 4%, at a 5% to 9% annual rate. Add it up, and Brookfield could produce annual total returns in the mid-teens. That’s fantastic return potential for a dividend stock, making it look like an excellent investment these days.