Could Trump Actually Be Good for Brookfield Infrastructure Partners L.P.?

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) is a great pickup because of its growing infrastructure projects and lucrative dividend.

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As is to be expected, there is a lot of uncertainty around what President Trump will mean for the U.S. economy, but also for economies around the world. There has been talk that he might trigger a trade war, which could cause significant damage to the growing but still fragile world economy.

One thing Trump has talked quite a bit about is his infrastructure plan. Through a mix of private and public funding (tax breaks), he is hoping to see over a trillion dollars invested in rebuilding American infrastructure. And one company that could benefit from this is Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP).

If Trump is going to give tax write-offs to companies that invest in infrastructure projects–whether that’s bridges, toll roads, or other types–Brookfield Infrastructure could see significant benefit. But I don’t advise buying this stock for that reason. There is a lot of time between now and whenever any sort of infrastructure plan is created. Instead, I believe in buying this stock because it is an incredibly high-quality utility and dividend-paying company.

Here’s what you need to know…

This is an offshoot of its parent company, Brookfield Asset Management, and it focuses its resources on investing in high-quality infrastructure projects, including transportation, utilities, communications, and energy. It has 37% of its assets in transportation, 39% in utilities, 16% in energy, and 8% in communications. It has 50% of its revenue coming from contractual sources and 41% is from regulated sources, so it is in a predictable business.

Like all of the Brookfield offshoots, it grows its business through acquisitions. Management expects to invest between $500 million and $1 billion per year over the next three to four years. And because there is so much need for infrastructure investments around the world, I expect the assets to be high-quality that immediately provide a boost to cash flow.

One example is the natural gas transmission assets formally owned by Petroleo Brasileiro SA Petrobras. Brookfield Infrastructure paid US$825 million for a 20% stake in the business with a consortium of clients buying 70%. All told, the investors paid US$5.2 billion. The great thing about this acquisition is that the toll-booth-like pipeline already has existing contracts that account for 100% of capacity.

In its Q3 earnings release, the company revealed that it had invested US$660 million in three different acquisitions: a group of Australian ports, a North American gas-storage business, and Peruvian toll roads. It’s also looking to invest $1.1 billion in its Brazilian gas and electricity transmission business and has $1.5 billion of projects coming online in the next year and a half.

All of this contributes to Brookfield Infrastructure’s goal of continuing to deliver consistent dividends to its investors. It currently pays a 3.59% yield, which is a quarterly distribution of US$0.59 per quarter. Since the company was spun out in 2008, it has delivered compound annual growth rate of 12% in its dividends with the expectation of growing that by anywhere from 5% to 9% per year going forward. And with the payout ratio only 68%, it’s well within the 60-70% range that the company wants.

The conclusion is this: Trump might provide a boost in infrastructure investments, which will help Brookfield Infrastructure Partners. However, when investing in companies, it’s all about the fundamentals. And fortunately, this company has amazing fundamentals.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada.

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