What Has Brookfield Infrastructure (BIPC) Stock Done For Investors?

Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) is a leading global investor in infrastructure assets. It owns premier infrastructure operations spanning the utility, energy midstream, transportation, and data segments.

Here's a look at how shares of Brookfield Infrastructure have performed over the past five years compared to the S&P 500 and what impacted the infrastructure stock's returns.

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Brookfield Infrastructure's five-year performance

Brookfield Infrastructure's stock hasn't done anything for investors over the past several years:

Data source: Ycharts.

As that table shows, the infrastructure operator has significantly underperformed the S&P 500 in each period.

However, the company's stock returns don't tell the whole story because Brookfield pays a high-yielding and steadily rising dividend. The company's payout currently yields 3.8%, more than double the S&P 500 (1.2% yield). Brookfield has also increased its dividend for 16 straight years, growing the payout at a 9% compound annual rate. Despite its attractive and steadily rising income stream, Brookfield's total return has still fallen well short of the S&P 500 over the last several years:

Data source: Ycharts.

What impacted Brookfield Infrastructure's returns?

Brookfield Infrastructure's poor stock performance in recent years is somewhat puzzling, given its financial results during that period. In 2020, Brookfield generated $1.5 billion or $2.09 per share of funds from operations (FFO). This year, the company expects to produce $2.6 billion or $3.32 per share of FFO, implying compound annual growth rates of 13% and 10%, respectively. Brookfield has grown its earnings faster than the dividend payment, resulting in its dividend payout ratio falling from 78% to 67%.

With earnings rising and its share price stagnant, Brookfield Infrastructure's valuation has gotten significantly cheaper over the years. It currently trades at about 13.5 times its FFO, down from about 21.5 times five years ago.

While Brookfield has grown briskly in recent years, it has faced some headwinds. A strong U.S. dollar has caused its FFO to grow more slowly on a constant currency basis, as it would have delivered 12% compound annual FFO per share growth without this headwind. Additionally, higher borrowing costs due to rising interest rates have reduced its annual FFO per share by 2% to 3%.

On a more positive note, those headwinds should fade in the coming years. The Federal Reserve is cutting interest rates, while the U.S. dollar could weaken over the next few years. Additionally, Brookfield has significantly increased its organic project backlog (from $2 billion in 2020 to $8 billion today). As a result, its FFO per share growth rate appears poised to reaccelerate in the coming years, potentially rising toward its long-term average of 14% annually.

Valuation matters

Brookfield traded at a premium valuation five years ago. As a result, its stock has delivered an underwhelming performance since then as headwinds slowed its growth rate.

However, it trades at a much cheaper valuation these days. With its growth rate poised to reaccelerate, Brookfield could deliver much higher total returns for investors over the next several years.

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.