Buy income trust Brookfield Infrastructure Partners L.P. for growth and yield


Brookfield Infrastructure Partners L.P. (TSX-BIP.UN) owns and operates high-quality utilities, transport and energy assets in North and South America, Australasia, and Europe. It also seeks acquisition opportunities in other infrastructure sectors with similar attributes.

Brookfield targets a total return of 12 to 15 per cent a year on the infrastructure assets it owns, measured over the long term. The intent is to generate this return from cash flow from existing operations, plus growth through investments in upgrades and expansion of the firm’s asset base, as well as acquisitions.

Through the funds from operations, or FFO, it earns, Brookfield’s objective is to pay a distribution that amounts to 60 to 70 per cent of FFO. And in light of its FFO growth expectations, it targets five to nine per cent annual growth in its distribution.

Since its spin-off from Brookfield Asset Management in 2008, Brookfield Infrastructure has increased its quarterly distribution to $0.48 a unit from $0.265, a compound annual growth rate of 10 per cent.

From 2009 to 2013, Brookfield’s FFO per unit were as follows: 2009, $2.45 (includes a gain on sale of Transmissoras Brasileiras de Energia); 2010, $1.79; 2011, $2.41; 2012, $2.41; and 2013, $3.30.

The firm’s annual distributions per unit over the same period were as follows: 2009, $1.06; 2010, $1.10; 2011, $1.32; 2012, $1.50; and 2013, $1.72.

This year, in light of Brookfield’s current prospects, management approved a 12 per cent increase in the quarterly distribution to $0.48 ($1.92 annualized). The increase was approved during a quarter in which the firm once again reported rising FFO.

For the three months ended March 31, 2014, Brookfield’s FFO were $186 million, or $0.89 a unit, compared with $160 million, or $0.80 a unit, in the same period of 2013. The increase reflected steady improvement in each of the firm’s operating segments and the deployment of capital in both organic growth initiatives and new acquisitions.

Management says the environment for its businesses remains favourable and should support solid results for the remainder of the year.

The units trade at just 12.3 times the $3.62 a unit Brookfield will likely earn in 2014. The distribution yield is 4.3 per cent. Brookfield Infrastructure is a buy.



Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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