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Brookfield Infrastructure Partners LP(BIP-N)

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Down 25%, This Magnificent Dividend Stock Is a Screaming Buy

Motley Fool - Sun Feb 4, 7:49AM CST

Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP) has lost 25% of its value over the past year. That's a head-scratching performance for a company that's operating extremely well. The company grew its funds from operations (FFO) by 10% last year (and 9% on a per-share basis). That gave it the fuel to increase its dividend by another 6%. That, in turn, extended its magnificent dividend growth streak to 15 straight years.

With its earnings rising and its share price falling, Brookfield now trades at a much cheaper price (and higher dividend yield of 4.3%). That makes it look like a screaming buy, especially considering that it expects 2024 to be an even stronger year.

Hitting the accelerator

Brookfield Infrastructure generated $2.3 billion, or $2.95 per share, of FFO last year. With shares recently trading at around $36 apiece, Brookfield Infrastructure sells for around 12 times its earnings. That's dirt cheap compared to the broader market. The S&P 500 index currently trades 22 times earnings, while the Nasdaq 100 trades at more than 30 times earnings.

The company is even cheaper when taking a closer look at its financial results. Brookfield Infrastructure closed three acquisitions during the fourth quarter (global intermodal logistics company Triton and two data center platforms). Those new investments helped power a 17% year-over-year increase in its FFO during the fourth quarter. That pushed its annualized FFO rate to $3.16 per share, driving its valuation down closer to 11 times earnings.

Those deals weren't its only growth drivers. Inflation-driven rate increases, volume growth across most of its infrastructure networks, and $1 billion of capital projects also contributed to its earnings last year. Organic growth for the year was a strong 8%. That helped offset the impact of asset sales, which the company recycled into new investments. Brookfield Infrastructure closed $1.9 billion of asset sales during the second quarter, which it redeployed across $2 billion of new investments that closed in the third and fourth quarters.

Entering 2024 with strong momentum

The timing of Brookfield's capital recycling activities will benefit it in 2024. The company will enjoy a full year of the three transactions it closed near the end of 2023. On top of that, it has secured two additional investments that will enhance its growth in 2024.

It recently completed an additional data center investment, buying 40 sites out of bankruptcy from Cyxtera. It paid $1.3 billion for the sites and associated real estate, which it fully financed by creating a new platform with 10 existing U.S. data centers so that it didn't need any additional equity to close the deal.

Brookfield Infrastructure also agreed to acquire American Tower's (NYSE: AMT) operations in India. It will pay that data infrastructure REIT $2 billion for a portfolio of 78,000 towers. The win-win deal will enable American Tower to unload a troublesome portfolio while giving it cash to repay debt. Meanwhile, it will enable Brookfield to significantly enhance its tower operations in India, where it already owns 175,000 sites. The acquisition will diversify its tenant mix while growing its scale. The company expects to invest about $150 million of equity into the deal.

Brookfield has also recently completed several transactions to raise $550 million in capital. That's part of its plan to generate another $2 billion in capital recycling activities this year. These cash inflows will give it the liquidity to make additional value-enhancing investments in 2024 as opportunities arise.

In addition to acquisitions, Brookfield should continue to benefit from its organic growth drivers. While inflation has moderated, the company should still get a boost from inflation-linked contracts. Also, the company continues to invest in high-return capital projects. It completed a big petrochemical complex in Canada last year that should be a more meaningful contributor in 2024. Meanwhile, Brookfield and its partner Intel should finish two new semiconductor fabrication facilities this year. It's also building new data centers, natural gas infrastructure, and indoor wireless systems in the U.S. and U.K.

These drivers position Brookfield to deliver strong FFO growth in 2024 and beyond. Consequently, the company should have no problem achieving its long-term target of increasing its dividend by 5% to 9% per year.

Growth and income at a bargain price

Brookfield Infrastructure is coming off another strong year. It expects 2024 to be even better, fueled by continued robust organic growth and new investments. Despite all that, shares have lost a quarter of their value over the past year, pushing its valuation to a low level. That makes Brookfield a screaming buy right now, given its strong total return potential.

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Matthew DiLallo has positions in American Tower, Brookfield Infrastructure, Brookfield Infrastructure Partners, and Intel and has the following options: long January 2025 $30 calls on Intel, short February 2024 $50 calls on Intel, short January 2025 $30 puts on Intel, and short March 2024 $50 calls on Intel. The Motley Fool has positions in and recommends American Tower. The Motley Fool recommends Brookfield Infrastructure Partners and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $180 calls on American Tower, short February 2024 $47 calls on Intel, and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.

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