2 global income trusts to buy

Here are two limited partnership income trusts that are ‘buys’ for both growth and income. They are both part of the Brookfield Asset Management corporation, a global asset manager with over $285 billion of assets under management.

Global_Income_TrustsThere are various forms of renewable energy, deriving directly or indirectly from the sun, or from heat generated deep within the earth. They include energy generated from solar, wind, geothermal, hydro-power and ocean resources, solid bio-mass, bio-gas and liquid bio-fuels.

Brookfield Renewable Partners (TSX—BEP.UN) operates one of the world’s largest publicly traded, pure-play renewable energy platforms. Its portfolio consists of hydroelectric, wind, solar and storage facilities in North America, South America, Europe and Asia, and totals over 16,000 MW of installed capacity.

Brookfield Renewable Partners is coming off a strong year for its business. In 2017, it deployed about US$625 million in new transactions and developments, in line with its target returns. It also commissioned 75 megawatts (MW) of new capacity, while furthering another 248 MW of construction and advanced stage projects that are expected to enter commercial operations over the next four years.

For the year ended Dec. 31, 2017, Brookfield’s funds from operations (FFO) were US$581 million, or $1.90 a unit, compared with $419 million, or $1.45 a unit, in the same period of 2016.
Its hydro assets reported $687 million of FFO supported by generation above the long-term average. Wind facilities delivered $105 million of FFO.

Brookfield’s solar facilities were acquired in the fourth quarter through its Terraform Power and Global acquisitions, and, therefore, contributed modestly to FFO. These will make full contributions in 2018.

In light of its strong financial results and the growth potential ahead, Brookfield has declared a five-per-cent increase in its annual distribution to $1.96 a unit.

In 2018, Brookfield will remain focused on furthering its key priorities, which include advancing its development pipeline, expanding profit margins, and assessing select contracting opportunities across its portfolio. Management believes the renewables environment remains favourable.

Brookfield trades at a high but still reasonable 14.2 times the C$2.86 a unit in FFO that it will probably earn in 2018. The annual distribution of US$1.96 yields 6.1 per cent. Brookfield Renewable Partners is a buy for growth and income.

Utilities, transport, energy, communications and resources

Last year was a strong one for Brookfield Infrastructure (TSX—BIP.UN) as it completed a successful decade in business. The company posted solid financial results, acquired a large marquee utility in Brazil for US$1.3 billion, invested almost $1 billion across its various networks and strengthened its balance sheet. Upon completion of the sale of its Chilean electricity transmission operation, corporate liquidity is expected to be about $3 billion.

Brookfield Infrastructure is a leading global infrastructure company that owns and operates high-quality, long-life assets in the utilities, transport, energy and communications infrastructure sectors across North and South America, Asia Pacific and Europe.

For the year ended Dec. 31, 2017, Brookfield’s funds from operations (FFO) were US$1.2 billion, or $3.11 a unit, compared with $944 million, or a $2.72 a unit, in 2016.

Results reflected the contribution of new investments, as well as organic growth of 10 per cent across the company. The utilities segment contributed the most to FFO, which was $532 million, up 53 per cent from $399 million the prior year.

Thanks to its solid financial performance, positive outlook for growth and significant liquidity position, Brookfield has approved an eight-per-cent increase in its quarterly distribution to US$0.47 a unit in 2018.

Brookfield believes the current economic environment is quite favourable for its operations and it’s optimistic about 2018. The company’s backlog should grow as customers commence new projects. Plus, it’s well positioned to pursue new investments using its high level of liquidity and the proceeds from asset recycling such as the sale of its Chilean operation noted above.

FFO should rise to US$3.35 (C$4.22) a unit in 2018. The units trade at a high, but still reasonable, 12.2 times that estimate. Their annual distribution of C$2.37 a unit yields 4.6 per cent. Brookfield is a buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the March 2, 2018, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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