Brookfield Infrastructure Partners (BIP 0.03%) and TerraForm Power (TERP) have lots of similarities. Both share a common parent in Brookfield Asset Management (BN -0.28%). They also focus on operating infrastructure that generates lots of stable cash flow, which enables them to offer income-focused investors similarly attractive payouts that both currently yield 3.9%.

However, there are a couple of key differences between these two companies that make one stand out as the better buy these days. Here's a look at the bull and bear cases for buying either infrastructure company.

Stacks of money with a arrow pointing up.

Image source: Getty Images.

The case for and against buying Brookfield Infrastructure

Brookfield Infrastructure has a long history of creating value for its investors. The company -- which operates a diversified portfolio of businesses focused on the utilityenergy, transportation, and data infrastructure segments -- has generated total annualized returns of 18% since its inception more than a decade ago. That's well ahead of the 10% annualized total return of the S&P 500 during that timeframe. It has also increased its distribution for the past 11 years, powered by a combination of acquisitions and organic growth. 

The company expects to continue growing value for its investors in the coming years, with it projecting that its cash flow will rise another 12% to 15% by year's end, fueled by high-end organic growth and the expected boost from more acquisitions. That's well above the company's target of 5% to 9% annual earnings growth, which is also the range at which it expects to increase its high-yielding dividend.  

If there's one rub against buying Brookfield these days, it's the company's valuation. After rallying 52% last year, and tacking on another 11% so far this year, it trades at more than 16 times its earnings. That's a lot more expensive than it was this time last year, especially since its cash flow per unit has only increased by about 9% in the past year. That higher valuation, though, seems justified for a company with Brookfield's growth track record.

The case for and against buying TerraForm Power

TerraForm Power has a spottier track record of creating value for investors. The renewable energy company has produced a total return of -8% since its initial public offering in 2015. However, since Brookfield Asset Management took control of the company in 2017, it has generated a nearly 80% total return, more than double that of the S&P 500.

Brookfield, through its affiliate Brookfield Renewable Partners (BEP -1.35%), has successfully engineered a turnaround strategy at TerraForm. The partners have worked together to enhance the profitability of TerraForm's legacy assets and improve its balance sheet, which has given it the financial flexibility to make acquisitions that are powering earnings and dividend growth. In the company's view, these deals have provided it with enough power to increase its dividend by 5% to 8% per year through 2022. 

Brookfield has been so successful in turning around TerraForm Power that it wants to combine that company with Brookfield Renewable to create one larger-scale clean power company. While TerraForm has yet to accept that deal, which currently values it at more than 17 times its projected 2022 cash flow, it seems highly likely that they'll agree to a transaction. 

Verdict: Brookfield Infrastructure is the better buy right now

Brookfield Infrastructure has been generating market-crushing returns since its formation more than a decade ago. That trend appears poised to continue, given that it has a large pipeline of organic expansions and acquisition opportunities lined up, which could help power market-beating returns in the coming years. That visible upside makes it a better buy versus TerraForm, which trades at a more expensive valuation in light of a merger proposal from Brookfield's other renewables-focused sibling.