Can This Dividend Dynamo Keep Dominating?

Shares of Brookfield Infrastructure Partners (NYSE: BIP  ) hit a 52-week high recently. Let's take a look at how it got here to find out whether there are still clear skies ahead.

How it got here
We've seen this picture before, and it looks roughly the same most of the time. Brookfield's diverse assets, many in steady, stable industries like utilities and ports, help prevent it from suffering the swings that often plague more specialized companies.

Brookfield's combination of stability and shareholder returns has made it a key player in Fool analyst Jim Royal's World's Best Dividend Portfolio. It's been one of that portfolio's best performers, alongside similarly attractive safe-harbor stocks like Philip Morris International (NYSE: PM  ) and Southern (NYSE: SO  ) . Both of those companies have also been regularly striking new 52-week highs, for roughly similar reasons.

BIP Total Return Price Chart

BIP Total Return Price data by YCharts

Brookfield has also bested defensive favorites Coca-Cola (NYSE: KO  ) and National Grid (NYSE: NGG  ) . Let's take a few moments to dig into the numbers to get a better idea of why Brookfield's done so well.

What you need to know
At first glance, Brookfield doesn't look better than the other stocks in this defensive basket, but once you examine the cash flow statement, the picture starts to clear up somewhat:

Company

P/E Ratio

Price to Free Cash Flow

Net Margin (TTM)

3-Year Annualized Income Growth

Brookfield Infrastructure Partners 37.7 13.0 8.7% 45.2%
Philip Morris 18.1 18.4 27.7% 11.3%
Southern 19.0 79.5 13.2% 9.7%
Coca-Cola 21.1 25.7 18.3% 8.5%
National Grid 12.0 43.4 14.7% 13.7%

Source: Morningstar. TTM = trailing-12-month.

Brookfield's superior free-cash-flow-based valuation makes it look like a good bargain for dividend-hungry investors, who need to watch the cash flow statements to make sure their stocks aren't going into the corporate kitty just to support the payout. That brings us to our next question: These companies all offer dividends, but are the payouts sustainable without debt issuances or other money-raising strategies?

Company

Price to Free Cash Flow

Dividend Yield

Free Cash Flow Payout Ratio (TTM)

Brookfield Infrastructure Partners 13.0 4.3% 75.5%*
Philip Morris 18.4 3.3% 61.5%
Southern 79.5 4.1% 332.6%
Coca-Cola 25.7 2.4% 47.5%
National Grid 43.4 5.9% 114.6%

Source: Morningstar. TTM = trailing-12-month. *Adjusted funds from operations payout ratio based on most recent quarterly company filing.

Brookfield's dividend definitely doesn't require the same high levels of debt financing that Southern has undertaken to keep both dividend and capital expenditures high. National Grid's strategy is similar, but it's had to sell fewer bonds to maintain its operations, which demand a similar level of capital spending as Southern.

Brookfield's dividend isn't in any immediate danger, but investors should keep their eyes on net income and free cash flow trends. Dividend-hungry safety-seekers may also be well-served by Coke or Philip Morris, neither of which are in any danger of depleting their cash, and both of which are comparatively less costly than the two electric utilities.

What's next?
Where does Brookfield go from here? Betting against defensive stalwarts has been a bad idea all year, and there's safety even in a decline, since the underlying business is so steady. Investors ought to pay attention to macroeconomic trends in Australia, where Brookfield makes much of its earnings. Brookfield's corporate structure should also be given thought, since it may not be worth additional tax complexity when other defensive stocks are just as steady.

The Motley Fool's CAPS community has given Brookfield a five-star rating, with only eight of over 1,000 CAPS players expecting the company to underperform the indexes in the future.

Interested in tracking this stock as it continues on its path? Add Brookfield Infrastructure Partners to your Watchlist now, for all the news we Fools can find, delivered to your inbox as it happens. If you're on the hunt for other stocks as stable and rewarding as Coke has been over the years, you need The Motley Fool's free report: "The Three Dow Stocks Dividend Investors Need." Don't wait to find out more -- click here for your free information now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Brookfield Infrastructure Partners and Coca-Cola. Motley Fool newsletter services have recommended buying shares of National Grid, Coca-Cola, Southern, and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On August 14, 2012, at 4:54 PM, FoolishLonghorn wrote:

    I have been a BIP shareholder for roughly 18 months. I bought the stocks for its high dividend yield, with very little thought for price appreciation.

    And now I am up over 40%.

    I think it's time to put a trailing stop on BIP. Although it's done great, I cannot help but think that the party will end sooner or later.

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