NextEra Energy (NEE 1.71%) and Brookfield Infrastructure Partners (BIP 2.24%) both own the infrastructure that keeps our day-to-day lives running smoothly. These physical assets are large and expensive to build (or buy). They generally provide a stable revenue stream to their owners either because of regulation, long-term contracts, or simply the vital nature of the asset allowing for tolls to be collected from individuals for their use. But there are huge differences between NextEra and Brookfield Infrastructure that you need to understand before choosing one over the other. 

1. Business focus

NextEra Energy is one of the largest electric companies in the United States. It operates two main businesses: regulated electric utilities in Florida and a renewable power operation that sells energy under long-term contracts throughout the country. Although it is a very well-run company, NextEra isn't all that diversified. 

A worker with power equipment in the background

Image source: Getty Images.

That's especially true when you compare it to Brookfield Infrastructure. Brookfield Infrastructure owns utility assets, as well as toll roads, railroads, marine ports, natural gas pipelines, and data storage assets. It operates on a global scale as well, with assets in Europe, North and South America, and Europe.   

If you're looking for an electric company, NextEra is the pure play here, but if you would prefer a diversified collection of infrastructure assets, the nod has to go to Brookfield Infrastructure Partners.

2. Corporate structure

NextEra is structured as a regular corporation, which is simple enough. Brookfield Infrastructure is a limited partnership, a much more complex entity. For starters, limited partnerships come with tax issues, including the fact that they don't play well with tax-advantaged retirement accounts. You should probably consult with a tax advisor if you own Brookfield Infrastructure. 

In addition, Brookfield Infrastructure is managed by Brookfield Asset Management, its general partner. This isn't inherently good or bad, and actually allows Brookfield Infrastructure to punch above its weight because of its large and financially strong parent. However, it is a more complicated entity that requires investors to get a handle on Brookfield Infrastructure and Brookfield Asset Management, which manages a number of other partnerships. NextEra, for reference, doesn't have a parent company sitting over it, though it does manage a limited partnership of its own. If you like to keep things simple, NextEra wins here. 

3. Dividends

One of the big reasons to look at infrastructure like utilities is income. Brookfield Infrastructure has a 4.5% distribution yield, which is over twice what you would get from an S&P 500 index fund. That's not bad, though you can get higher, and still relatively safe, yields in the market. However, it trounces NextEra's 2.3% yield. 

Brookfield Infrastructure has grown its dividend for 12 consecutive years. NextEra has rewarded investors with 25 years of annual increases. That said, Brookfield Infrastructure hasn't been around as long as NextEra, so the two really stand toe to toe on this one. 

Brookfield also has a stated distribution policy of paying out between 60% and 70% of its funds from operations to unitholders. Its goal is to raise the dividend by 5% to 9% each year. The annualized increase over the past decade is roughly 12%, so it has beaten that goal over the long term. NextEra's has no stated long-term dividend targets, though it expects dividend growth to be in the 12% to 14% range in 2019 and 2020. 

4. Growth plans

NextEra's utility industry-leading dividend growth will come from two sources. First, it has a relatively low payout ratio of around 60%, which gives it ample room to boost the dividend at a higher rate than its projected 6% to 8% earnings growth. The earnings growth, meanwhile, is backed by capital spending and upgrade plans within its regulated operations and the addition of new assets within its renewable power business. Combined, the utility expects to spend around $13 billion a year through 2022. There's material visibility here and a long history of solid execution. 

Brookfield Infrastructure Partners' approach is a little different. It is an active manager of assets, looking to buy out-of-favor businesses to own. It then works hard on managing them well, improving operations along the way. And then, when the assets are dear again, Brookfield Infrastructure Partners will often sell an asset to fund the purchase of more unfashionable assets. Although there is a modest amount of internal spending each year, the big story is that Brookfield Infrastructure owns and actively manages a portfolio of infrastructure assets. It is a lot harder to get a handle on what the future holds and growth can be lumpy since acquisitions can be large and sporadic. The partnership has done a good job so far of growing over time, but it requires a little more faith to own than NextEra. 

5. Leverage

Although you could spend a lot of time dissecting balance sheets here, the big picture is more than enough to show the difference. NextEra's debt-to-EBITDA ratio is around 3.7 times, near the low end of the utility industry. Brookfield Infrastructure's debt-to-EBITDA ratio is roughly 5.2 times, notably higher. Simply put, Brookfield makes more aggressive use of leverage to grow its business. If you are looking for a conservative investment, NextEra would be the better option.

NEE Financial Debt to EBITDA (TTM) Chart

NEE financial debt to EBITDA (TTM). Data by YCharts.

6. Valuation

NextEra's dividend yield is near its lowest level over the past 20 years or so. Its price-to-sales and price-to-book value ratios are both notably above their five-year averages. It is an expensive stock today, largely because of the success it has achieved in growing its business and dividend. Investors looking for a bargain will not be interested. Those seeking a dividend growth story might be, but it requires going in with your eyes wide open on the valuation front. Investors are paying up for the quality and growth prospects here. 

Brookfield Infrastructure's yield is toward the lower end of its range since its IPO late in the last decade. With that said, its price-to-sales ratio is below its five-year average and its price-to-book value ratio is also above its five-year average. While it would be hard to call Brookfield Infrastructure cheap, it doesn't exactly appear expensive, either. Of the two, it is probably the better bargain. 

What to do from here?

The truth is that both NextEra and Brookfield Infrastructure are well-run entities. They take different approaches to the infrastructure space, but investors wouldn't be making a mistake by owning either of them. However, NextEra is far more focused, has a much lower yield, and looks expensive today. Though dividend growth investors might be interested, most others will probably want to think carefully about buying at current prices. Brookfield Infrastructure has a yield that will be more enticing to income investors, but it uses more leverage, has a less certain future because of its portfolio approach, and isn't exactly cheap. Income-focused investors might want to take a look, but there are other infrastructure options that have higher yields and strong track records that might be a better fit right now. 

In other words, neither NextEra nor Brookfield Infrastructure is a clear winner here, though Brookfield appears to have a slight edge because of its more reasonable valuation. In fact, before making a final call, you might want to take a closer look at Enterprise Products PartnersMagellan Midstream Partners, or some of the other out-of-favor midstream players. They are more-focused infrastructure owners, but they look like better values and generally have more generous yields.