You might not be surprised to find out that Brookfield Infrastructure Partners L.P. (BIP -1.15%) and Brookfield Asset Management Inc. (BN -0.69%) are related -- after all, they share the Brookfield name. However, they are vastly different businesses, and which one you buy will depend on your long-term goals for growth and income. Here's what you'll need to know to understand this pair of stocks and why high-yielding Brookfield Infrastructure Partners is my pick for long-term investors.
Running the show
Brookfield Asset Management is an over 100-year-old Canadian company that invests in what are now called alternative assets. That list includes things like energy, infrastructure, and real estate. It has a long history in this space, noting that its first investment in 1899 was in a Brazilian railway and power company. For most of its history, Brookfield Asset Management worked just for itself, only opening its doors to outside investors early in the current century.
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Having finally made the choice to take on outside money, though, Brookfield Asset Management has worked quickly to grow its asset base. In just the past decade, total assets under management have expanded from roughly $90 billion to around $280 billion at the start of 2018. Although a little bit of a simplification, the more money Brookfield Asset Management runs, the more money it makes through fees.
This is an important factor to keep in mind. Broadly speaking, Brookfield Asset Management grows in two ways: by getting investors to give it more money, and by growing the assets it currently manages. With the market at or near peak levels, the second one could easily become a headwind should asset prices turn lower (effectively reducing total assets under management). A market downturn, meanwhile, would also make it harder to get investors to give Brookfield Asset Management more capital.
The main appeal here is business growth as the asset manager expands its asset base. The company pays a dividend, which has been increased annually for seven years, but the yield is only 1.4%. A notable downturn in the market, meanwhile, would make it much harder for the company to keep that streak alive since fees would be falling. With that caveat out of the way, it's time to look at the connection between Brookfield Asset Management and Brookfield Infrastructure Partners.
Part of the gang
One of the ways Brookfield Asset Management raises capital is by launching publicly traded controlled partnerships. It currently has four main vehicles: Brookfield Property Partners, Brookfield Renewable Partners, Brookfield Business Partners, and, you probably guessed it, Brookfield Infrastructure Partners. Each one of these entities has a slightly different focus, even though they all work around the same basic infrastructure and hard-asset themes.
The names are pretty good indications of what each does. Property Partners owns real estate like malls and industrial facilities. Renewable Partners owns renewable power assets like hydro, solar, and wind power plants. Business Partners invests directly in corporate entities, most of which are in the infrastructure and property spaces. And Infrastructure Partners owns a broad array of infrastructure assets -- it is probably the most diversified partnership in the Brookfield family.
Brookfield Infrastructure Partners breaks down its business into four segments: Utilities (electric and gas utilities), Transport (railroads, toll roads, and ports), Energy (natural gas pipelines), and Data Infrastructure (cell towers). Its portfolio of assets spans the globe, with a heavy concentration in North America providing a foundation for investments in South America, Europe, and Asia/Australia.
The list of assets Brookfield Infrastructure Partners owns, however, is not static. It takes an opportunistic approach, looking to buy when assets are out of favor and sell when a good price can be fetched. For example, over the past decade, the partnership sold 10 businesses for roughly $3.8 billion, achieving an average internal rate of return of 25%. It works to run efficient businesses, but it is not wedded to owning any asset forever.
BIP Dividend Per Share (Annual) data by YCharts.
That said, one of the key goals of Brookfield Infrastructure Partners is to return value to unitholders via distributions. The current yield is roughly 4.5%, and the distribution has been increased every year for 11 years. The goal is to achieve annual distribution growth of 5% to 9%, a range it has exceeded over the trailing 3- and 5-year periods. The core of that comes from the income generated from its portfolio of vital infrastructure businesses. Even if the market should turn south, those assets will continue to operate and throw off cash to support the dividend.
Brookfield or Brookfield?
The big question here is, are you a growth investor or an income investor? If you favor growth, then Brookfield Asset Management is the better choice, the caveat being that the market is currently at all time highs, and the last decade or so has been a time of steady market gains. A market downturn could cause this asset management company's asset growth to stall, which is why Brookfield Infrastructure Partners is probably the better option for most investors.
The assets it owns will keep running and throwing off cash that gets passed on to unitholders via distributions no matter what happens in the stock market. Clearly, if you don't want an income stock, then Brookfield Infrastructure Partners isn't something you would be interested in. However, if you are a long-term investor, the model of actively managing a portfolio of infrastructure assets is simpler and more stable.
