Despite concerns over slowing economic growth around the globe, Brookfield Infrastructure Partners (NYSE: BIP) continues to deliver excellent results and build itself into one of the world's most diverse utility empires. Find out what makes this high-yield dividend stock so special, and it could be considered one of America's best "buy and hold forever" income investments.
Solid growth in tough times
Source: Brookfield Infrastructure Partners earnings presentation.
Source: Brookfield Infrastructure Partners.
One big takeaway from these results is that Brookfield Infrastructure was able to grow its adjusted FFO -- cash available for distributions -- at an impressive year-over-year rate of 18%, and 11%, in the past three and nine months, respectively.
This showing was due in part to strong performance from Brookfield's UK's electricity and gas distribution business, improved margins on its Australian railroads, and improved traffic volume and toll rates from its South American toll roads.
More important is that Brookfield Infrastructure's AFFO yield, which measures how much distributable cash is being generated annually by its invested capital, remains both within management's long-term goal of 12% to 15% and stable.
That Brookfield is currently able to access the capital markets at favorable rates while generating annual distributable cash flow returns of 13% means that Brookfield Infrastructure is proving itself an excellent allocator of investors' money -- which results in exceptional strength when it comes to the things investors care most about: the quarterly payout.
World-class distribution profile
| Yield | Trailing-12-Month AFFO/Unit Payout Ratio | Long-Term Distribution Growth Guidance |
|---|---|---|
| 5.1% | 71% | 5% to 9% |
Source: Brookfield Infrastructure Partners earnings presentations. Author calculations.
Income investors need to pay attention not just to a stock's dividend yield, but all three parts of its dividend profile: yield, sustainability, and long-term growth potential.
Brookfield's distribution profile (a kind of tax-deferred dividend) is excellent in all three areas, but I want to point out three important things.
First, Brookfield Infrastructure is great at underpromising and overdelivering on distribution growth. Case in point, the LP has grown its payout at a 13% CAGR since its IPO. Brookfield Infrastructure's three- and nine-month distributions growth rates were, at 10.4% in both cases, also above management's conservative long-term payout guidance.
Second, investors need to understand that though management targets a 60%-70% FFO-per-unit payout ratio,that's just how it decided how much cash to pay out each quarter. AFFO per unit is the real sustainability metric to watch, because it accounts for the cost of maintaining Brookfield Infrastructure's assets. Thus, it's what keeps the distributable cash flowing to investors over the long term.
Finally, Brookfield Infrastructure was able to retain 29% of its distributable cash flow over the past year. That isn't just great news because it means the payout is safe and likely to keep growing -- it also means that Brookfield Infrastructure Partners had $187 million left over after paying investors. That's cash that can fund Brookfield's growth without having to borrow or further sell additional units.
Strong growth runway ahead
In the third quarter, Brookfield Infrastructure invested $160 million into expanding its existing asset base. It also grew its organic growth pipeline by $225 million to $1.3 billion. That means that, if Brookfield were to stop buying new assets, it would still be able to generate an additional $169 million in annual AFFO just by maximizing its existing ports, railways, electrical transmission lines, and energy storage infrastructure.
However, Brookfield Infrastructure, which is managed by its sponsor and general partner, Brookfield Asset Management (NYSE: BAM), has an exceptional track record of acquiring quality infrastructure and utility assets to help grow investor income over time.
For instance, Brookfield Asset Management recently put together an $8.6 billion deal to acquire Asciano Limited, which owns over 40 Australian and New Zealand ports. Brookfield Infrastructure Partners will invest $1.2 billion and end up with a 19.2% interest in the new assets.
Other recent Brookfield Asset Management deals include a $230 million purchase of six Indian toll roads, a $175 million buyout of Niska Gas Storage Partners, and a large loan to a Brazilian construction company that is guaranteed a 15% return and will eventually result in the purchase of additional Brazilian toll roads and airport infrastructure.
Bottom line: The best utility stock you can own keeps getting better
Brookfield's world-class management team continues to execute brilliantly on its superior business model. By taking advantage of slowing growth in key economies around the world to acquire attractive long-term infrastructure assets at favorable prices, it's consistently able to deliver what dividend investors crave most: an attractive, secure payout with excellent long-term growth prospects that's likely to deliver solid, market-beating total returns for many years to come.
