What is Brookfield Infrastructure Partners?
Brookfield Infrastructure is a publicly traded Limited Partner. If you don’t know what that means you can read about it here. In short, Brookfield Asset Management (BAM) owns Brookfield Infrustructure Partners (BIP) but BIP is treated as its own publicly traded company. More about this later.
BIP owns diversified infrastructure assets all over the world. Its asset classes are in the following areas:
- Utilities: electricity transmission lines, natural gas pipelines, and electricity and natural gas connections
- Transportation: rail track, ports, and toll roads
- Energy: natural gas transmission pipelines, natural gas storage and processing plants, and residential infrastructure
- Data Infrastructure: towers and active rooftop sites, data centers, and cell sites
**I left out a lot but these are the big ones. They basically invest in predicable cash flow assets. Speaking of cash flows.
Also, the majority of their assets are regulated and under contract, which makes them a quality pick for uncertain times, like a recession.
Essentially, the company claims to have the predictable cash flow of a utility company, while still utilizing leverage and reinvested cash flow to grow the assets under management. Hence the self proclaimed title, “Grow-tility.” By investing in high producing assets the company has managed to increase its dividends/distributions over the last decade from $.73 to $2.15 per unit. At its current price of $37.50 that means you’re receiving a 5.7% secured and increasing dividend/distribution.
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Why I Like It
Cash Flow Growth: The company has managed to grow their cash flow on a per unit basis in excess of 15% for years on end. I like the cash flow growth in combination with the secure diversified asset class. In the end the distributions follow their funds from operation, which have been consistently increasing.
High Margin Assets: The company had 2019 EBITDA margins of 55% (might not be high in post-covid world). I think it’s important that their margins are traditionally high and it proves management is continuing to invest in profitable, high returning assets.
Investor Oriented: The company has managed to increase distributions 11% Y/Y for the last 10 years. This shows management is able to consistently grow the cash flow and return it to the investors. At an already high 5.7%, this can be a very attractive combination. Also, the units have appreciated 220% in the last 10 years, versus the S&P’s 130%. I like the company is beating the market in appreciation and yields. There’s opportunity for massive total return with the correct timing. It’s killed the market in the past and there’s no reason to say it can’t continue, especially with a good buying point.
New Share Option: Although I have liked this company for a long time, the units are a taxation bother. It has tons of complications if you buy them within a retirement account and you almost need an accountant to make sense of it. That’s why I’ve avoid writing about this name so far. However, in the last month the company introduced BIPC, which are corporation stock.
BIPC mimics the Partner’s units and have the same price movement and distribution yields. On April 1st, this stock went on the NYSE and here I am letting you people know first. The stock is treated the same as every other one and is made to have no real discernible difference from BIP, except being way freaking easier and more tax effective.
The Picker Recommends
The Picker thinks that if you have the discipline to hold this name for 5 years or longer, then you can do quite well. Receive your yield and reinvest the dividends and then enjoy the price appreciation as the company continues to deliver in this low interest rate environment.
I think the current price is attractive at around 12.5 EBIDTA, but the market has had a massive run up recently. I don’t think you will do terrible at all at the current price. I think if there is any pullback then you can do a lot better by buying a great company at a great price. A month ago when the market was at a low, BIP’s yield reached 8%. That yield alone is the average total return for the S&P 500. Food for thought.
I think a smart move would be to wait till the yield is around 6.5% and just average down from there. You’ll receive a very good growing yield, turn on reinvest, and then leave it alone for 5 years.
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***All opinions are from Fundasy Investor and should not be the sole basis for an investment. Do your own research. We hold no positions in any securities mentioned in this article.