Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP) has done a magnificent job growing its dividend over the years. The global infrastructure giant has increased its payout for 16 straight years, every single year since its formation. It has delivered an impressive 9% compound annual dividend growth rate during that period. That payout currently yields an attractive 4.9%.
Fueling the company's dividend has been its ability to grow its business through organic investment and accretive acquisitions. One crucial factor supporting its ability to continue investing in growing its business is its smart capital recycling strategy. Brookfield Infrastructure routinely cashes in on the value of its mature businesses, giving it more cash to invest in new opportunities that can earn even higher returns to drive accelerated growth.
A moneymaking strategy
Brookfield Infrastructure has a simple business strategy. It acquires high-quality infrastructure assets on a value basis, enhances them through an operations-oriented management strategy, and eventually recycles that capital to fund new investment opportunities. The company aims to generate an internal rate of return (IRR) of 12% to 15% from this strategy.
The infrastructure operator recently showcased the brilliance of this strategy by successfully completing the exit of its investment in the Natural Gas Pipeline Company (NGPL). Brookfield initially acquired a 27% stake in NGPL when it purchased Babcock & Brown Infrastructure in 2009. Brookfield opportunistically increased its stake to 50% in 2015 when it partnered with natural gas pipeline giant Kinder Morgan(NYSE: KMI) to buy out all the other minority owners to successfully recapitalize the business at a $3.4 billion valuation.
Over the subsequent decade, Brookfield and Kinder Morgan executed their business plan to create value by investing in organic growth projects. They expanded NGPL into key regions to connect natural gas supply to utilities and liquified natural gas export facilities.
In 2021, Brookfield and Kinder Morgan harvested some of the value they created by selling a 25% stake in NGPL to a fund controlled by ArcLight Partners for $830 million, implying a valuation of $5.2 billion for the system. Brookfield sold an additional stake to ArcLight two years later. The company is now selling its remaining 25% stake to ArcLight, with Kinder Morgan retaining its 37.5% interest in the pipeline company.
With that sale, Brookfield has generated over $1.7 billion in total proceeds from its investment in NGPL. That crystalizes an 18% IRR and a multiple of capital of 3 on its investment since the 2015 recapitalization with Kinder Morgan.
Continuing to cash in
Brookfield Infrastructure is also starting to cash in on the value of its growing global data center portfolio. It recently agreed to sell a 30% interest in a 244-megawatt portfolio of operating data center sites in Europe. The deal will generate about $90 million in cash for Brookfield to reinvest in other opportunities, including its large pipeline of data center development projects. The company is also working toward the sale of an additional 60% stake in this portfolio, which it hopes to sign in the coming months.
"Securing these two transactions adds to the excellent start we have had to the year," CEO Sam Pollock stated in a press release unveiling the transactions. The company has now locked in $700 million in proceeds from asset sales this year and expects that number to rise to $900 million once it sells down an additional stake in its European data center portfolio. "This marks meaningful progress toward our asset monetization goal of $5 billion to $6 billion over the next two years, and we continue to experience strong activity levels and buyer interest in our in-progress capital recycling initiatives, with more to come," Pollock stated.
Those sales will provide Brookfield with additional capital to invest in its large and growing pipeline of new investment opportunities. The company currently has about $8 billion of organic capital projects in its backlog, with another $4 billion of projects under development. Meanwhile, its pipeline of early stage capital deployment opportunities is the deepest it has been in years. The company is pursuing new organic expansion opportunities and accretive acquisitions. These new investments would enhance the company's already robust long-term growth outlook.
The growth accelerator
Organic drivers position Brookfield to deliver 6% to 9% annual growth in its funds from operations (FFO) per share in the coming years. The company firmly believes it can boost its FFO-per-share growth rate to more than 10% annually by recycling capital into higher-returning new opportunities. That should give the company plenty of fuel to continue growing its dividend within its 5% to 9% target range. Meanwhile, with its yield up to nearly 5% and its earnings growing at a double-digit annual pace, Brookfield could produce total returns in the mid-teens. That makes it look like a great stock to buy and hold for the long haul.
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Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, and Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
