Brookfield Infrastructure Partners (BIP -1.33%) has been a magnificent investment over the years. The global infrastructure operator has grown its funds from operations (FFO) per unit at an 11% compound annual rate over the last decade. Meanwhile, it has expanded its distribution to investors at a 9% compound annual rate. Those dual growth drivers have helped power superior total returns. Brookfield Infrastructure Partners has generated a 13.7% annualized return over the last decade, outpacing the S&P 500's 12.1% average annual total return.
The company remains as attractive an investment as ever. Because of that, I recently padded my position by adding even more units to my portfolio. Here's why I keep buying more of this magnificent dividend stock.
An extremely attractive value proposition
While Brookfield Infrastructure Partners has been a strong performer over the long term, it has fallen along with most other stocks during the current bear market. Units are down about 24% over the past year. What's interesting is that they have fallen a lot further than shares of its corporate twin Brookfield Renewable Corporation (BIPC -0.47%):
That has widened the valuation gap between the two economically equivalent entities. Units of Brookfield Infrastructure Partners currently trade at around $34.50 apiece, while Brookfield Infrastructure Corporation fetches more than $46 a share. That's a 25% discount even though both entities receive an equal share of the earnings ($2.71 per share/unit of FFO) and have the same distribution/dividend payment rate of $0.3825 per unit/ share. Because of that, the partnership units are a much more compelling investment:
|
Entity |
Recent Price |
Current Yield |
Price-to-FFO |
|---|---|---|---|
|
Brookfield Infrastructure Partners |
$34.55 |
4.4% |
12.7 times |
|
Brookfield Infrastructure Corporation |
$46.27 |
3.3% |
17.1 times |
Data source: Brookfield Infrastructure Partners and Google Finance.
Brookfield Infrastructure Partners trades at a dirt cheap price compared to its economically equivalent twin and the broader market. The S&P 500 currently trades at 18.1 times earnings, while the Nasdaq Composite fetches more than 26 times earnings.
Ample power to continue growing the dividend
Units of Brookfield Infrastructure Partners underperformed last year even though it was another very strong year for the company. Brookfield Infrastructure grew its FFO by 20% overall and by 12% on a per unit/share basis. Organic growth drivers like elevated inflation and expansion-project completions powered half of its growth, while the company's capital-recycling strategy fueled the other half. That enabled the company to increase its distribution by 6% earlier this year, its 14th straight year of growing the payout.
Those catalysts set the company up for another strong year in 2023. Inflation remains elevated, which should bolster the cash flows of its inflation-linked rate structures. Meanwhile, the company will start experiencing the full benefit of its recently completed Heartland Petrochemical Complex in Canada by the second half of this year. On top of that, it secured $2.9 billion of investments in new acquisitions last year, with the largest two deals closing in the first quarter of 2023. Because of that, those investments should boost its bottom line this year. Brookfield Infrastructure anticipates these catalysts will drive 10%+ FFO per share/unit growth this year.
Brookfield Infrastructure expects to continue executing its capital-recycling strategy this year. It had several asset sales in various stages, which should generate over $2 billion of net proceeds it can use to make new investments. Meanwhile, the company has already replenished its investment pipeline. It's evaluating several opportunities, including taking public companies private and acquiring infrastructure assets from larger corporations.
The company's capital-recycling activities will add to its already solid organic growth profile that should see the company expand its FFO per share/unit by 6% to 9% per year over the long term. Those dual drivers should enable Brookfield Infrastructure to achieve its target of increasing its distribution by 5% to 9% per year.
A wonderful investment at a fantastic price
Brookfield Infrastructure Partners is a rare commodity. It's an exceptional company with a long track record of growing value for investors and trading at an incredible price. Because of that, I recently added to my position even though it's already one of my top holdings. If the value proposition remains, I'd have no problem continuing to grow my holdings in the future.
