When it comes to creating passive income streams, investors should strongly consider looking at boring investments, which tend to provide more conservative investors with the reliable and stable dividends they desire. Boring assets underpin Brookfield Infrastructure Partners (BIP -1.33%) portfolio as it looks to support its generous 3.7% yield. Here's a quick overview of the business and why you might want to buy and hold this boring stock for the long term.
Always working on getting better
"Infrastructure" is a broad term that describes the core physical assets that underpin society. You probably take many of them for granted, since the list includes things like roads, seaports, energy pipelines, and electricity systems. In developed nations, people just assume that these things will be there and operate as expected. As investments, however, the story is that well maintained infrastructure can provide reliable streams of cash flow because everyone is willing to ensure they don't become a major problem.
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Brookfield Infrastructure Partners, as its name implies, focuses on owning and operating these types of assets. Its portfolio is spread across the utility, transportation, midstream energy, and data sectors. Roughly 44% of its funds from operations (FFO) comes from North America, with the rest spread across South America (19%), the Asia-Pacific region (19%), and Europe (18%). In other words, it's kind of like a one stop shop for investors seeking diversified infrastructure exposure.
Meanwhile, it's an active investor. That means it's willing to buy assets it thinks are cheap and sell ones that it thinks will fetch a premium, using the proceeds to fund the aforementioned acquisitions. Improving the prices of an asset from cheap enough to buy to valuable enough to fetch a generous price, meanwhile, includes both operating the assets well and investing in them to build more value. And, noting the data component, management is willing to branch into emerging infrastructure niches as well, which is also helped along by the buying and selling process. Basically, Brookfield Infrastructure is designed and managed as a long-term-oriented business.
Forever is a long time
That's great, but there will be ups and downs in the business over time. However, the inevitable down cycles should probably be seen as opportunities to add this infrastructure play to your portfolio. Notably, Brookfield Infrastructure has more than a 10-year streak of annual dividend increases under its belt. The average annual distribution increase since 2009 has been a huge 10%. The partnership came public in 2008, so the annual distribution streak is basically unbroken since the initial public offering.
That's not shocking, however, because distribution growth is a core goal here. On the partnerships website -- the "overview" page -- it explains, "With an attractive distribution yield and a distribution growth target of 5%-9% annually, Brookfield Infrastructure offers strong risk-adjusted total returns to its investors." Generous distributions, clearly capable of keeping up with the historical growth of inflation, are not a side act.
And don't overlook the term "risk-adjusted," either. That harks back to the diversified portfolio of cash-producing infrastructure assets, which are vital to society's proper functioning. On top of that, Brookfield Infrastructure's balance sheet is investment grade-rated, which means it is also fiscally conservative.
As a further backstop, the partnership is managed by Brookfield Asset Management (BN -0.74%), a large Canadian asset manager with a long history in the infrastructure space. If there were a problem, it's likely that the parent here would step in to help Brookfield Infrastructure muddle through hard times.
A passive-income stalwart
Obviously, no investment is perfect, and Brookfield Infrastructure could get hit by operating, geopolitical, and broader market issues. The units are, in fact, down around 15% over the past three months, slightly worse than the S&P 500 Index. However, with an above-market yield, a strong business model, and an impressive distribution history, long-term dividend investors should probably take the time to get to know this boring infrastructure name while it's unloved.
