Brookfield Infrastructure Partners (BIP -0.47%) is an incredible bargain these days. The global infrastructure operator trades at an extremely cheap value compared to the broader market and its corporate twin Brookfield Infrastructure Corporation (BIPC 0.32%). Because of that, it offers an attractive dividend yield and significant upside potential. Those features make it look like a great investment.
Extremely cheap for no apparent reason
Brookfield Infrastructure is coming off another strong year. The company grew its funds from operations (FFO) by 12% per unit/share last year to $2.71. It expects FFO per unit/share to expand by at least 10% this year. That would put it around $3 per unit/share.
The corporate shares currently trade at around $44. That price point implies that Brookfield Infrastructure Corporation trades at about 14.7 times its forward earnings. That's cheap, considering the S&P 500's forward price-to-earnings (PE) ratio is 17.5.
What's remarkable is that the economically equivalent partnership units trade at an even lower price point of $32 per unit. This level gives them a forward earnings multiple of 10.7. That's a bargain-basement price compared to its corporate twin and the broader market.
There's no discernible reason for the massive disconnect. The two entities own the same assets with equal shares of the underlying company's earnings and distributions. While many investors prefer to own corporate shares over partnership units for tax reasons, we don't see quite as wide a discount between Brookfield Corporation's renewable energy affiliates Brookfield Renewable Partners and Brookfield Renewable Corporation:
More income from the same entity
A big benefit of the massive disconnect between the value of Brookfield Infrastructure Partners and its corporate twin is a much higher dividend yield. Both entities pay the same quarterly rate of $0.3825 per unit/share following a 6% increase in the payment rate earlier this year. However, given its lower price, the partnership units offer a much higher income yield of 4.76% versus 3.46% for the corporate shares.
Put another way, a $1,000 investment in Brookfield Infrastructure Partners would generate $47.60 of annual passive income. Meanwhile, that same investment would only generate $34.60 of dividend income from Brookfield Infrastructure Corporation. That's 37.6% more income from the same entity.
The income will only grow from there. Brookfield Infrastructure has an exceptional track record of increasing its distribution to investors. It notched its 14th straight year of payment growth in 2023. The company expects to increase its payout by 5% to 9% per unit/share annually.
Assuming a 5% growth rate, a $1,000 investment in partnership units would generate $60.75 of annual passive income in five years compared to $44.16 from the corporate shares.
The company should have no problem achieving its dividend growth target. Brookfield Infrastructure expects to grow its FFO per unit/share organically at a 6% to 9% annual rate over the long term. Driving that forecast is inflation-linked contractual rate increases (3% to 4% per year), volume growth as the economy expands (1% to 2% per year), and expansion projects (2% to 3% per year).
Meanwhile, the company can enhance its growth rate through capital recycling, a strategy of selling mature assets and redeploying the proceeds into higher-returning investments. High-end organic growth and capital recycling are helping drive double-digit annual FFO growth in 2022 and 2023.
A gift for income investors
Brookfield Infrastructure Partners trades at a massive discount to the market and its corporate sibling. Because of that, it looks like an incredible investment opportunity. The higher-yielding payout alone will enable investors to generate a lot more passive income in the coming years.
