Brookfield Infrastructure Partners: Is Now the Time to Buy?

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If you wait long enough, the stock market will serve up an opportunity to purchase a company you like at an appealing price.

This week, I’m putting Brookfield Infrastructure Partners (NYSE: BIP) through The Value Meter, and I think you are going to like what you see.

Brookfield has a very simple business plan.

The company buys high-quality, long-lasting infrastructure assets that generate predictable cash flows for decades.

I’m talking about towers, tunnels, highways, pipelines, power plants, electrical lines and railways…

Plus some other things you wouldn’t think of. (More on those below.)

These are big-dollar infrastructure assets that provide key services in the regions where they operate.

There aren’t many companies that can write the checks to purchase these kinds of assets.

But Brookfield is one of them, and the company is very good at what it does.

Since its inception in 2008, Brookfield has grown its funds from operations (FFO) per share by more than 3,000%.

Chart: Brookfield's Powerful Growth in FFO per Share

The company splits its assets into four main infrastructure segments.

No. 1: Regulated Utilities

Utilities are boring!

But they’re boring in a beautiful way.

Brookfield’s utilities are reliably profitable, and their cash flows increase at a steady pace over time.

The company wisely chose to diversify its utility assets geographically so it wouldn’t be overly influenced by any single regulatory regime.

These assets include power generation facilities, electricity transmission lines and a commodity export terminal.

Collectively, they are worth billions.

For the first six months of 2023, Brookfield’s utilities generated $432 million – which was roughly one-third of the company’s FFO.

No. 2: Transportation

Brookfield’s transportation infrastructure assets are unique, irreplaceable and essential to their regions.

For example, the company is the only provider of a railway network in the southern portion of western Australia, where it owns 5,500 kilometers (km) of track.

It also has 3,800 km of toll roads in Brazil, Peru and India…

Not to mention port terminals in the U.K. and Australia and a liquefied natural gas export facility in the U.S.

So far this year, these transportation assets have generated $391 million in FFO, which is just below the amount the utilities assets have generated.

No. 3: Energy

Brookfield owns several midstream energy assets.

“Midstream” refers to the infrastructure that delivers oil and gas after they have been pumped out of the ground.

The company operates more than 15,000 km of pipelines in the United States and another 10,000 km in Canada.

It also can store approximately 600 billion cubic feet of natural gas for its customers.

Through the first six months of 2023, Brookfield generated $359 million in FFO from its midstream assets.

No. 4: Data

Despite being Brookfield’s smallest segment, data presents a huge growth opportunity going forward.

Company management says the demand for data is growing faster than the demand for any other commodity in the world.

In order to facilitate that growth, the world needs companies like Brookfield to continue investing in data transmission and storage systems.

Brookfield has already invested $1.5 billion into its data segment (which generated $142 million in FFO in the first half of 2023), and it owns 485 million watts of operating capacity.

This segment is growing, and it is growing fast.

All of This Infrastructure Creates Growth and Dividends

This huge base of infrastructure assets provides Brookfield with strong (and growing) free cash flows.

The company has used that free cash flow to steadily grow its dividend by an annualized 8% per year over the past decade.

Chart: Brookfield Has Consistently Raised Its Dividend

However, due to the rise in interest rates, the share prices of companies like Brookfield have had a rough go so far in 2023.

There is less demand for dividend stocks when investors can get high rates of return from term deposits and Treasury bills.

There is also concern that infrastructure companies that carry debt, including Brookfield, will see a dip in profits as a result of rising rates.

But I’m not concerned about that in this case, as 90% of Brookfield’s debt is fixed rate.

Moreover, the rise in interest rates has actually led to decreased competition with regard to acquiring new infrastructure assets.

That means lower purchase prices and higher returns for the company’s investments going forward.

With the stock down year to date, Brookfield currently yields a strong 6%.

Plus, management is projecting FFO to grow by 12% annually over the next three years.

Now is a fantastic time to buy shares of a great company that offers a large, steadily growing dividend.

The Value Meter rates Brookfield Infrastructure Partners as being “Slightly Undervalued.”

The Value Meter

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