The Motley Fool

This Is a Fabulous Buy-and-Hold Dividend Stock

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) stock has been a fantastic long-term investment. Not only has it been delivering industry-beating and market-beating returns, but it has also done so while offering a juicy distribution that has increased over time.

Total returns outperformance

Up until the end of March, Brookfield Infrastructure’s five-year and roughly 10-year annualized total returns were 22% and 27%, respectively. This handily beat the annualized total returns of 9% and 7%, respectively, for the same period, in the S&P Utilities Index, as well as the 13% and 9% annualized total returns of the S&P 500 Index, which essentially is a representation of the U.S. market.

Distribution growth

Although management has guided to increase its distribution per unit by 5-9% per year, Brookfield Infrastructure has actually increased its distribution per unit by about 11% per year since 2009. This has been backed by cash-flow-per-unit growth of 19% per year. So, Brookfield Infrastructure’s distribution is very safe.

Recent news

On Wednesday, Brookfield Infrastructure announced that it was acquiring a natural gas gathering and processing business from Enbridge Inc.

The business consists of 19 natural gas processing facilities with total operating processing capacity of 3.3 billion cubic feet per day and 3,550 kilometers of gathering pipelines, with connectivity to major demand markets including the U.S. Pacific Northwest, U.S. Midwest, and Western Canada.

Sam Pollock, CEO of Brookfield Infrastructure, noted, “The business is strategically positioned for the continued development of the prolific Montney Basin. Cash flows from the business are anchored by a firm contract profile with a weighted average life of 10 years.”

Investor takeaway

Brookfield Infrastructure’s portfolio spans across different industries in the utilities, transport, energy, and communications infrastructure sectors. The acquisition of the natural gas processing and gathering assets will fit nicely into Brookfield Infrastructure’s diversified portfolio and support a sustainable, growing distribution.

The stock had a super run-up of about 77% in two years from 2016 to 2018. On careful inspection, the stock started consolidating in April 2017.

This is a sign of a strong stock backed by a strong business. The longer the stock consolidates, the safer it is to invest in Brookfield Infrastructure.

Notably, Brookfield Infrastructure offers a U.S. dollar-denominated distribution. So, a strong greenback against the loonie will push its yield higher for unitholders who opt to receive the distribution in the Canadian currency.

At the recent quotation of $53.70 per share, it offers a yield of about 4.6%. The stock is a reasonable buy here for long-term, but if you’re looking for a bigger margin of safety, aim for a starting yield of closer to 5%.

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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 Kay Ng owns shares of Brookfield Infrastructure Partners and Enbridge. Enbridge and Brookfield Infrastructure Partners are recommendations of Stock Advisor Canada. 

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