Brookfield Infrastructure, a prominent global player in the infrastructure investment sector, has recently come under scrutiny for its lackluster stock performance over the past five years. Despite its stature and diversified portfolio that includes utility, energy midstream, transportation, and data segments, the company has consistently underperformed compared to the S&P 500.
Over various time frames, Brookfield Infrastructure’s stock returns have lagged significantly behind the broader market. In the past year, the stock recorded a mere 0.5% growth, while its three-year and five-year performances were -3.8% and 1.6% respectively. In stark contrast, the S&P 500 saw substantial increases of 13.4%, 67.7%, and 88.9% in the same periods. These figures highlight a persistent trend of underperformance for Brookfield, which raises questions about the underlying factors contributing to this dismal stock trajectory.
A noteworthy aspect of Brookfield Infrastructure, however, is its focus on providing a steadily rising dividend. Currently, the company’s dividend yield stands at 3.8%, far exceeding the S&P 500’s yield of 1.2%. With 16 consecutive years of dividend increases at a compound annual growth rate of 9%, the income generated from these dividends remains an attractive feature for investors. However, even when factoring in dividend contributions, Brookfield’s total return still fell short of the S&P 500 with returns of 3.8%, 7.8%, and 21.1% over the past year, three years, and five years, respectively.
Several factors have contributed to Brookfield Infrastructure’s poor stock performance, despite relatively strong financial results. In 2020, the firm reported $1.5 billion in funds from operations (FFO), translating to $2.09 per share. Projections for the current year suggest an increase to $2.6 billion, or $3.32 per share, forecasting compound annual growth rates of 13% and 10% for each year, respectively. Notably, the company’s earnings have outpaced dividend payments, resulting in a reduced dividend payout ratio from 78% to 67%.
As Brookfield’s earnings have grown, its stock price has remained stagnant, leading to a notable decline in valuation. Currently, the stock trades at approximately 13.5 times its FFO, significantly down from nearly 21.5 times five years ago.
Despite the growth, Brookfield has faced challenges, with a strong U.S. dollar negatively impacting FFO growth on a constant currency basis. This currency headwind is estimated to have slowed FFO growth to about 12%, while rising interest rates have contributed to a 2% to 3% decrease in annual FFO per share due to increased borrowing costs.
Looking ahead, there are signs of optimism. Analysts suggest that the challenges faced by Brookfield may lessen in the coming years, with the Federal Reserve likely to cut interest rates and a potential weakening of the U.S. dollar. Furthermore, the company has considerably expanded its organic project backlog, increasing from $2 billion in 2020 to $8 billion today. This growth could lead to a reacceleration of FFO per share growth, approaching its historical average of 14% annually.
Overall, while Brookfield Infrastructure has struggled to keep pace with the booming S&P 500, the combination of a favorable dividend, improved valuation, and potential recovery in growth rates paints a more promising picture for the future. As the company seeks to leverage its backlog and adapt to shifting economic conditions, investors may find renewed interest in Brookfield’s offerings in the years to come.
