There's a lot of uncertainty in the stock market these days. Tariffs could drive a resurgence in inflation and cause a global economic slowdown, and these headwinds could impact the profitability of many companies.
However, Brookfield Infrastructure (BIPC +1.30%)(BIP +2.37%) is in a strong position to navigate these near-term pressures due to the highly contracted nature of its business. Further, periods of market uncertainty have historically been a great time for it to make acquisitions. Add in the company's very secure 4.5%-yielding dividend, and it looks like a no-brainer stock to buy amid all the uncertainty.
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Built to deliver stable growth
Brookfield Infrastructure owns a diversified global portfolio of essential infrastructure across utilities, transport, midstream, and data asset classes. The company's infrastructure businesses produce very stable cash flows backed by highly contracted or regulated frameworks. About 85% of its funds from operations (FFO) come from stable sources with a weighted average remaining term of nine years. Roughly 70% of its FFO comes from frameworks that index rates to inflation, while another 15% is protected from inflation. Having highly contracted and inflation-indexed cash flows puts Brookfield in a strong position to navigate through this current period of uncertainty.
That was evident in the company's recent first-quarter earnings report. Brookfield generated $646 million of FFO, a 5% increase from the prior-year period. It benefited from strong inflation indexation, higher revenue across its critical infrastructure network, completing over $1.3 billion of expansion projects, and the impact of closing several smaller tuck-in acquisitions. Those growth drivers offset the impact of foreign exchange fluctuations, higher borrowing costs due to rising interest rates, and the lost income from asset sales completed as part of its capital recycling strategy.
The company's capital recycling strategy enables it to harvest the value of mature assets and redeploy the proceeds into higher-returning new investment opportunities. Brookfield recently secured its latest investment, agreeing to buy the Colonial pipeline system for $9 billion (it's funding $500 million or 15% of the equity investment, with its partners financing the rest). Colonial operates an irreplaceable network of refined petroleum products pipelines that spans 5,500 miles between Texas and New York. The system generates highly stable and resilient cash flows that link rates to inflation. It bought Colonial for a lower valuation than it achieved in recent asset sales, which will result in higher cash flows when it closes the deal.
NYSE: BIPC
Key Data Points
Uncertainty creates opportunity
Brookfield is currently in the middle of a major capital recycling push. It has secured $1.6 billion in proceeds from asset sales this year. That's part of its strategy to generate $5 billion to $6 billion from capital recycling activities over the next two years.
Those future sales will add to the company's already robust liquidity, which stood at $4.9 billion at the end of the first quarter. "This substantial amount of dry powder provides us with the confidence to pursue a variety of acquisition opportunities as they arise," wrote CEO Sam Pollock in his first-quarter letter to investors.
That positions the company to capitalize on the current market uncertainty. Pollock wrote in the shareholder letter:
The market uncertainty will create attractive entry points for new investment opportunities. Some of our best investments historically have been made in periods of dislocation. In particular, public companies have more attractive entry points for take-private transactions and are additionally candidates to carve out and sell assets. We believe there will be buyers of assets that will stay on the sidelines, reducing competition for new acquisitions. Those with long-term conviction, such as Brookfield Infrastructure, stand to benefit.
Pollock noted that the company plans to maintain a long-term investment view while "being bold when the right opportunity presents itself." He remarked that the company is seeing a strengthening in investment opportunities across all three of its investing megatrends -- digitalization, decarbonization, and deglobalization -- with the current trend toward onshoring more U.S. manufacturing likely to drive additional investment opportunities around the globalization trend.
Low-risk growth and income
Brookfield's combination of stable cash flows, visible organic growth from inflation-linked contracts and expansion projects, and accretive M&A puts it in a solid position to produce strong shareholder returns in the current environment. Its target remains to deliver 10%+ compound annual FFO growth over the longer term, which should support 5% to 9% annual dividend growth. With its already higher-yielding payout, Brookfield offers low-risk income and high-upside growth potential, making it a no-brainer buy right now.
