Hydroelectric infrastructure: General Electric (GE 1.65%) makes it, Brookfield Asset Management (BN 3.04%) runs it. Wind turbines: GE makes them, Brookfield runs them. The same is true in other areas like natural gas pipelines, and electricity networks: General Electric manufactures components used in the industry while Brookfield operates assets within that same industry.
Despite being much smaller, though, Brookfield is a far superior stock. Here's why.
General Electric's days of being a reliable dividend-paying machine are over. The company upped its quarterly payout every year for decades, but in 2017 slashed it in half, from $0.24 per share to $0.12 per share, and then in 2018 cut it down to $0.01 per share. What used to be a generous 3% to 4% yield is now just 0.6%, with no apparent plans for a raise anytime soon.
Meanwhile, Brookfield Asset Management has upped its dividend every year since 2012. While its current 1.3% yield isn't spectacular, it's at least reliable, backed by the company's strong cash flow. Also, if you're a dividend investor, you can consider the superior payouts offered by Brookfield's master limited partnerships (MLPs) like Brookfield Infrastructure Partners, currently yielding 4.75%, or Brookfield Renewable Partners, with a current yield of 3.9%.
Where it counts
Despite operating in similar industries, Brookfield has been able to prosper where General Electric hasn't. In part, that's because Brookfield only needs to operate the assets it owns to make a profit, while GE has to actually sell new equipment and ongoing services to customers. And right now, those customers just aren't buying what GE is selling.
For example, Brookfield Renewable Partners operates 219 hydroelectric generation facilities in North and South America. These have a combined annual generation capacity of 7.9 gigawatts, and they churned out $386 million in revenue and $156 million in funds from operations in Q1 2020 alone. That's dam impressive.
However, compared to wind and solar farms, hydroelectric plants are difficult to engineer and expensive to build, so not a lot of people are building them at present. Indeed, of Brookfield Renewable's eight current growth projects, only one is a hydroelectric facility, and it will have just 30 MW of capacity.
That probably explains why GE lumped its Q1 2020 hydroelectric sales in with offshore wind and "other" sales. These only brought in $200 million combined during the quarter, while GE's renewable energy segment as a whole posted a $300 million net loss. Brookfield clearly outperforms here.
The same pattern shows up elsewhere in the companies' portfolios. Utilities just aren't buying big gas-powered turbines and infrastructure like they used to, while consumer demand for electricity and gas has continued to rise. So Brookfield Infrastructure Partners' existing energy and utility assets churned out $73 million in net earnings in Q1, while GE's entire power segment posted a $100 million net loss for the quarter.
That's not to say that Brookfield never finds itself in a slowing market that's seeing diminishing returns. In fact, Brookfield MLP Brookfield Property Partners has been struggling as retail businesses have closed locations during the pandemic. But as an asset manager as opposed to a manufacturer, it's easier for Brookfield to adjust its portfolio accordingly. Indeed, Brookfield's management team has expressed a desire not to rely so much on debt to finance acquisitions, but instead to sell mature assets and invest the proceeds in higher-growth opportunities.
Meanwhile, GE has already sold most of its biggest underperformers -- and even some of its outperformers, like the high-margin biopharma business -- to pay down its massive debt load. Because its aircraft engines, gas generators, and wind turbines all rely on turbine technology, selling any one of them could impact the company's potential for organic growth. Plus, GE is already so large that small acquisitions can only move the needle so much. Nimble Brookfield has a distinct advantage here.
Although Brookfield is much, much smaller than GE, the company is better-positioned to outperform in the current environment. And if the environment shifts, Brookfield is likelier to be able to adjust its portfolio accordingly. Not to mention Brookfield has a higher, more secure dividend, plus solid prospects for growth. Investors who were looking at General Electric should strongly consider adding Brookfield to their portfolios instead.