We're barely into 2020, but I recently bought my first new stock of the year: Brookfield Infrastructure Partners (BIP -0.80%). I owe a debt of thanks to my Motley Fool colleague Matt DiLallo for first bringing Brookfield to my attention. Matt has covered the stock for a while (and very well, I might add). His analysis of Brookfield Infrastructure Partners put the stock on my radar screen a few years ago.
There are plenty of great stocks on the market, though. Why did I pick Brookfield as my first investment of the new year? Here are three reasons I finally bought this winning stock.
Image source: Getty Images.
1. Its business is rock-solid
Like many investors, I view buying a stock as buying a piece of a business. I like Brookfield Infrastructure because its business is rock-solid.
The company, as its name implies, owns infrastructure assets. Brookfield operates cell towers, data centers, electricity transmission systems, natural gas pipelines, natural gas storage facilities, ports, railroads, toll roads, and more. Several of these are the kinds of businesses that tend to have natural moats. It's usually too expensive for competitors to step in.
These assets also provide steady revenue and earnings streams. Around 95% of Brookfield Infrastructure's adjusted EBITDA comes from regulated or contracted revenue that doesn't fluctuate based on economic conditions.
Another nice thing about Brookfield is its global diversification. The company's assets in North America generate around 30% of its total cash flow. But that's only a little more than the 25% of cash flow that Asia-Pacific and South America each contribute, and the 20% of cash flow from Europe.
2. I like the company's growth plans
Brookfield Infrastructure Partners targets a long-term return on invested capital of 12% to 15% annually. The company has been able to deliver this in the past -- and I like its growth plans to continue achieving these solid returns.
A primary component of Brookfield's growth strategy is to sell off its lower-performing assets and redeploy the cash into higher-performing assets. The company is focusing heavily on building up its data infrastructure operations, acquiring a group of communications towers in India in addition to announcing plans to buy telecom provider Cincinnati Bell for $2.6 billion. These moves come after a series of other data infrastructure deals over the last couple of years.
The company also benefits from overall economic growth across the world, which drives higher demand for its infrastructure assets. And while inflation is a problem for many companies, it's a boon for Brookfield, with 75% of its EBITDA indexed to inflation.
3. I love the high dividend yield
Brookfield Infrastructure Partners is among the cream of the crop for dividend stocks. It currently yields 4%, which would be even higher if not for the share price soaring nearly 45% last year.
The company has increased its dividend payout by 42% over the last five years. Can Brookfield keep this level of dividend hikes going in the future? I think so. The company's business model gives it the steady cash flows that enable it to keep the dividends flowing; its growth strategy should provide extra cash to maintain the increases.
With such a strong dividend, Brookfield doesn't have a big hurdle to achieve the growth needed to consistently deliver double-digit-percentage returns. That's a huge advantage, in my opinion.
One other plus
There's one extra advantage that Brookfield offers me: more portfolio diversification. I currently own 28 stocks and a handful of exchange-traded funds (ETFs). My portfolio includes quite a few healthcare stocks and tech stocks, but no utilities.
The addition of Brookfield provides some exposure to the utilities sector, but it isn't a run-of-the-mill utility. The company even calls itself a "grow-tility" because of its excellent growth prospects. That's an apt description despite its corniness.
The Motley Fool's Anand Chokkavelu recently included Brookfield Infrastructure Partners as one of the 20 top stocks investors should buy in 2020. I think Anand is right -- and I've put my money where my mouth is.
