There are a lot of things to like about Brookfield Infrastructure Corp. (BIPC 0.32%), but there are also some negatives that need to be considered. All in all, this highly complex entity is a strong option if you are looking for a simple way to get some infrastructure exposure into your portfolio. However, as I consider replacing Dominion Energy (D 1.10%) in my own portfolio, Brookfield just doesn't fit my needs. Here's why you might like Brookfield Infrastructure and why you might want to pass it by.
What is it?
The first complexity with Brookfield Infrastructure is that there are two versions of it. There is Brookfield Infrastructure Corp., which is structured as a regular company, and Brookfield Infrastructure Partners (BIP -0.47%), which is a limited partnership (LP). They are designed to be identical entities except for the fact that one is an LP (which maintains a different corporate structure for tax purposes). In fact, Brookfield Infrastructure Corp. shares can be exchanged one-for-one for Brookfield Infrastructure Partnership units.
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Why two different corporate structures? Brookfield Infrastructure, a name I'll use to describe the overall entity from here on out, came public as an LP in early 2008. The problem with that structure is that many institutional investors can't own LPs (in part because of how the organization is taxed), so a very large group of wealthy investors was barred from owning it. To attract more capital, Brookfield Infrastructure created Brookfield Infrastructure Corp. in 2020 via a stock split/spinoff. Both classes represent ownership in the same entity, Brookfield Infrastructure, but they have different structures. It's complex, which may turn a lot of investors off.
There's another subtle difference that's important here. Although the two share classes basically represent ownership in the same entity, Brookfield Infrastructure Corp. tends to trade at a premium to Brookfield Infrastructure Partners. That's best shown by their respective yields, with Brookfield Infrastructure Corp.'s dividend yield at around 3.6% and Brookfield Infrastructure Partners' distribution yield at nearly 4.4%. Same Brookfield Infrastructure, vastly different yields, with the less complex corporate structure clearly getting more investor attention despite the fact that the quarterly disbursements are identical dollar values.
As I look for a potential alternative to Dominion Energy, which yields 4.5% or so, Brookfield Infrastructure Partners is the version that I would most likely consider. But that would mean taking on some tax complications, specifically including dealing with a K-1 form come tax time. But here's another nuance: Brookfield Infrastructure Partners is an LP, not a master limited partnership (MLP). So it doesn't suffer from all the problems of an MLP. Most notably, Brookfield Infrastructure Partners can, according to the company, be owned in a tax-advantaged retirement account. This is a pretty complex issue, so you'll probably want to talk to a tax specialist to address your specific situation. I'm not sure it's worth the extra effort for me.
So what does it do?
Brookfield Infrastructure, speaking broadly again, owns what its name implies, infrastructure. These assets are generally large, fee generating, and highly predictable. Today, the portfolio has exposure to the utility, transportation (toll roads and ports), midstream (pipelines), and data (fiber-optic cables, cell towers, and data centers) sectors. It has assets in Europe, Asia, and the Americas. Attractively, it offers a one-stop shop for investors looking to add infrastructure to their portfolios.
The problem here is that this is the portfolio as it stands today. Brookfield Infrastructure doesn't really own the assets, per se; it's better to think of it as investing in them, usually along with partners, until they can be sold at a higher price. Essentially, Brookfield Infrastructure tries to buy on the cheap and then, after running and upgrading assets, sell out and use the proceeds to start the cycle again. Its portfolio, by design, will change over time. I'm personally looking at alternatives to a utility that owns and operates its assets directly, with the goal, for the most part, of keeping them. Brookfield Infrastructure isn't a simple replacement for Dominion Energy; it would drastically change the nature of my portfolio.
And yet Brookfield Infrastructure has an enviable dividend track record, with Brookfield Infrastructure Partners, the older entity, having increased its distribution annually for more than 15 consecutive years. That's much better than what Dominion has achieved, noting its dividend cut in 2020 and the recent corporate review that suggests a static dividend payment for, potentially, years into the future. Only there are other utility stocks I can buy with dividend histories that are as strong, if not stronger, than Brookfield Infrastructure's impressive dividend streak, so this alone isn't enough to sway me.
I'm likely to pass, but...
Given the complexity here, I'm likely to pass on Brookfield Infrastructure as a replacement for Dominion Energy. One of my key investment questions is whether I would want my wife to own a stock if I were to die (morbid, perhaps, but I'm getting to an age where death is an increasingly relevant investment factor). I'm certain my wife would be perplexed by the complexities of Brookfield Infrastructure, given her general disdain for all things financial.
However, I see where this entity could be a great option for investors who like the idea of owning an actively managed and diversified portfolio of infrastructure assets. And given the two structures, it is likely that one will fit your particular needs. Meanwhile, both Brookfield Infrastructure Partners and Brookfield Infrastructure Corp. have fallen notably from their 52-week highs (23% and 17%, respectively), so now could actually be a decent time to take a closer look.
