This Infrastructure Stock Could Be the Best Investment of the Decade

Many companies would consider themselves lucky to operate in an industry benefiting from just one megatrend. That's because the tailwinds from that trend could help drive above-average earnings growth for years to come.

Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) has an embarrassment of riches. The leading global infrastructure company is capitalizing on not one but three massive global megatrends: decarbonization, deglobalization, and digitalization. Those catalysts help drive the company's view that the world needs to invest an astounding $100 trillion over the next 15 years to maintain, upgrade, and build infrastructure. Given its leadership in the sector, it could be one of the best investments over the next decade as it capitalizes on massive opportunities to invest in infrastructure.

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Multiple growth drivers

Brookfield Infrastructure believes that a trio of organic drivers will grow its funds from operations (FFO) by 6% to 9% per share each year. They are:

• Inflation indexation: Brookfield's infrastructure businesses produce very stable cash flow backed by long-term contracts and government-regulated rate structures, many of which link rates to inflation. Those escalators should boost its FFO per share by 3% to 4% per year.
• GDP growth: The company expects that an expanding global economy will drive volume growth across its portfolio, which should add 1% to 2% to its FFO per share each year.
• Reinvested cash flow: Brookfield pays out 60% to 70% of its stable cash flows via dividends. It retains the rest to fund high-return organic expansion projects, which should drive another 2%-3% annual FFO per-share growth.

In addition to that internally funded growth, Brookfield also recycles capital from asset sales into higher-returning new investments, including additional capital projects and accretive acquisitions. The company currently has $8 billion of capital projects in the backlog, including several data center development projects, two U.S. semiconductor fabrication facilities, projects to expand its transportation businesses, utility growth projects, and energy midstream expansions. Meanwhile, it has another $4 billion of projects under development.

Those projects are only the beginning. Given its leadership in the sector, Brookfield expects to capture a meaningful share of future infrastructure investment opportunities via new capital projects and acquisitions. "In terms of new deployment," wrote CEO Sam Pollock in his fourth-quarter letter to investors, "we have entered 2025 with a pipeline of early stage capital deployment opportunities that is the deepest it has been in years." These additional growth catalysts fuel the company's view that it can grow its FFO per share at a more than 10% annual rate in the coming years.

A compelling income stream

A robust growth profile is only part of Brookfield Infrastructure's value proposition. The company also pays a high-yielding and steadily rising dividend. The payout currently yields over 4%, which is well above average (the S&P 500's dividend yield is around 1.2%).

Brookfield Infrastructure has an excellent record of growing its dividend. Last year was the 16th year in a row of increasing its dividend within or above its target range (every year since its formation). It has grown its payout at a 9% compound annual rate during that period. It aims to increase its dividend by 5% to 9% annually in the future. Because of that, it can provide investors with a solid and growing base return.

An attractive value proposition

Companies growing as fast as Brookfield Infrastructure typically trade at a premium valuation. However, that's not the case with Brookfield. It generated $3.12 per share of FFO last year. With its stock price recently over $40 per share, it trades at about 13.5 times its FFO.

That's dirt cheap compared to the broader market. The S&P 500 currently trades at nearly 26 times earnings while the Nasdaq-100 index is over 34 times earnings. Given its growth, Brookfield should trade at a much higher valuation multiple. Its low valuation is why the stock offers such a high dividend yield.

A trio of value enhancers

Brookfield Infrastructure's megatrend-powered catalysts position it to grow its earnings at a more than 10% annual rate for many years to come. On top of that, it pays a more than 4%-yielding dividend that should continue growing at a healthy rate. Those factors alone position the company to deliver total returns of around 15% per year. Meanwhile, there's additional upside potential from an expansion in its valuation multiple. This high total return potential could make Brookfield one of the best investments over the next decade, especially when factoring in its much lower risk profile.

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Matt DiLallo has positions in Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.