Brookfield Infrastructure Partners (NYSE:BIP) recently held its annual investor day. One of the themes this year is why the company is a must-own utility. CFO Bahir Manios ran through the company's rationale, centering on three factors that set it apart from its peers.

1. Security of cash flow

Manios first drilled down into Brookfield Infrastructure's cash flow, noting four important characteristics:

  • Stable underlying cash flows: Regulatory frameworks and contracted capacity supply 95% of its cash flow.
  • High margin and strong cash conversation: The company's businesses currently generate 55% EBITDA margins and convert 87% of their EBITDA into cash flow.
  • Highly diversified business: Brookfield currently gets 13% of its cash flow from data infrastructure, up from 5% last year; 25% from energy, up from 18% in 2018; 32% from utilities, down from 40%; and 30% from transport, down from 37%. Brookfield's also diversified by region as North America supplies 30% of its earnings, followed by South America and Asia at 25% apiece, and Europe at 20%.
  • Recession resistant attributes: Brookfield's business won't experience much impact if the global economy heads in reverse. That's because only 5% of its earnings are recession sensitive due to the overall stability of its cash flow.

Thanks to these factors, Brookfield has the low-risk cash flow that investors seek in a utility investment.

A man in a business suit writing a a clipboard with a container port in the background.

Image source: Getty Images.

2. Outsize growth relative to peers

Next, Manios discussed Brookfield's growth prospects. He noted that the company expects to organically grow its cash flow per unit at a 6% to 9% annual rate over the long term. Three factors drive that view:

  • Inflationary price increases on existing contracts should boost cash flow per unit by 3% to 4% per year.
  • Volume upside from GDP growth should increase its cash flow per unit by 1% to 2% annually.
  • The company has more than $2 billion of expansion projects coming online over the next three years, which should add another 2% to 3% of incremental earnings growth.

Meanwhile, acquisitions can provide an even more meaningful boost to its bottom line. The company recently completed several transactions that have helped supercharge its growth rate. It has a few more deals in the pipeline that will provide an additional boost when they close. Add the incremental income from those deals to its organic growth and Brookfield's annualized cash flow per unit in the first quarter of 2020 will be 25% above where it was in June of last year. Meanwhile, with a strong balance sheet and the ability to recycle capital, Brookfield has the potential to continue growing at an accelerated rate in the coming years by making more needle-moving acquisitions.

3. Attractive relative valuation

Finally, Brookfield's CEO touched on the company's valuation. He noted that even with a big run-up in the unit price this year, the company now trades at just 16.1 times its cash flow. For comparison, units fetched 17.5 times their cash flow, on average, in 2017 and 2018.

Meanwhile, Brookfield's even cheaper when considering where cash flow will be in 2020. The company's current forecast is that its cash flow run rate in next year's first quarter will be $3.75 per unit. With its units currently trading at $49.50 apiece, it implies that Brookfield sells for 13.2 times 2020's cash flow.

Brookfield also sells at a discount to its peers despite being a more attractive investment:


Brookfield Infrastructure

Peer Group

Price to adjusted funds from operations



Enterprise value to EBITDA



Dividend yield



Dividend growth

7% to 9% per year

4% per year

Degree of diversification



Data source: Brookfield Infrastructure Partners. Note: Peer group = S&P 500 Utilities index.

Attractive any way you slice it

Brookfield Infrastructure believes it has become a must-own investment for those seeking a lower-risk income stream. Driving this view is that it combines stable cash flow with above-average growth prospects all for a relatively lower valuation. The company therefore appears well positioned to continue generating market-beating total returns in the coming years. That makes it an excellent stock to consider buying to hold for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.