Brookfield Infrastructure Partners LP (NYSE: BIP), a global infrastructure provider, soared 6.4% on strong earnings. Here’s why dividend investors will like what they see.
Tim’s Take:
With money for infrastructure spending one of the few things both US President-elect Joe Biden and the Republicans agree on, there are bound to be investment opportunities.
The infrastructure shortfall is part of a global problem. According to the Global Infrastructure Hub (a G20 initiative), around US$88 trillion will need to be spent on global infrastructure between now and 2040.
Enter Brookfield Infrastructure Partners. The company does what it says on the tin; it owns a variety of infrastructure assets all over the world.
These include utilities, transport operations, energy and data infrastructure. Operating as an owner of these infrastructure assets, a remarkably high 85% of Brookfield Infrastructure’s revenues are locked in on long-term contracts.
Stable amid Covid-19
As a result, these cash flows are relatively stable. For example, even though it has a number of operations that were hit by the Covid-19 pandemic at its height (in the second quarter), Brookfield Infrastructure results from that quarter were respectable.
Its funds from operations (FFO) – basically a measure of cash flow from a yieldco’s operations – was broadly the same in Q2 2020 as it was in the same quarter of 2019.
For dividend investors, that meant the company kept its quarterly dividend of US$0.485 per share in the second quarter. In its most recent quarter (Q3 2020), the company delivered US$365 million in FFO, which was up 8% year-on-year.
One of the more exciting parts of its business is data infrastructure, where it recently closed on an acquisition of 135,000 recently constructed telecom towers in India. Its share of the deal (at US$600 million) gives it a sizeable stake in the US$3.4 billion group of towers.
Additionally, it’s already signed a lengthy 30-year contract with the seller of the towers; Reliance Industries – which is best known for operating the wildly-popular, and affordable, Reliance Jio wireless service in India.
Dividend growth and tailwinds
That Indian cell tower deal proves one of the best things about its business; that Brookfield Infrastructure is one of the few globally-diversified pure-play infrastructure stocks out there. Its recent acquisition deals highlight this global reach (see below).
Source: Brookfield Infrastructure Partners Investor Day, September 2020
Dubbing itself a “growtility”, the company has a track record to back it up. Brookfield Infrastructure was spun-off from parent, and asset management giant, Brookfield Asset Management Inc (NYSE: BAM), in 2008.
Over the last decade, the company has managed to grow its dividend at a compound annual growth rate of a robust 11%. Today, its dividend is yielding 3.9%.
There’s plenty of growth left for Brookfield Infrastructure. Operating more as an asset owner, investors should remember that they have to be comfortable with how its business model works.
Primarily, it sells underperforming, or ageing, infrastructure assets and reinvests the proceeds into higher-growth opportunities.
The data infrastructure portion is a perfect example of a high-growth part of the business that management is shifting to focus to.
Despite only generating, just over 13.5% of overall FFO in the latest quarter, the 40% year-on-year growth of data infrastructure FFO proves that Brookfield Infrastructure has a growth component to it as well.
For long-term investors who want both reliable passive income and a steadily-growing infrastructure business, Brookfield Infrastructure Partners fits the bill.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Brookfield Infrastructure Partners LP.
