Recession or Not: This Is the Best Long-Term Stock to Buy Today

The best strategy for long-term investors is to find companies with a diverse portfolio of high-quality assets such as Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP).

Brookfield Infrastructure Partners (TSX: BIP.UN)(NYSE: BIP) is a globally diversified company that owns a portfolio of infrastructure assets constructed to generate sustainable and growing returns for the long term.

Brookfield hosted its investor day a few weeks ago, giving us insight into its updated operations.

It’s been one of the best-performing companies for investors the last decade. Since 2009, Brookfield has grown its per unit funds from operations (FFO) at a compounded annual growth rate (CAGR) of 18%. It’s also grown its dividend at a CAGR of roughly 11% in the same time frame.

This has translated to investors who would have seen a 10-year annualised total return of 25% vs. the TSX, which has an annualized return of just 7% over the same period. The diversification it offers to such high-quality assets around the world is what really makes it such a compelling investment.

Today, it has assets in North America, which make up 30% of cash flows, South America which does 25%, Europe does 20% Recession or Not: This Is the Best Long-Term Stock to Buy Todayand the Asia Pacific region does the remaining 25%.

Its assets are split into four main segments, its utilities assets do about 32% of cash flow, the transport assets do about 30%, energy does 25% and the data infrastructure companies account for 13% of cash flow.

The largest sub sector asset groups include regulated transmission, regulated distribution, rail, toll roads and natural gas midstream, and compose roughly 78% of the company’s total FFO.

Investors worried about an impeding recession should note that Brookfield has $3 billion in total liquidity and doesn’t have any significant debt maturing within the next five years. That, coupled with its debt to earnings before interest, taxes, depreciation and amortization (EBITDA) of roughly 4.25 times, gives Brookfield strong stability.

It’s also reassuring that the company has stated that despite bull market conditions that exist, it’s proceeding with caution by staying highly disciplined and making conservative decisions.

Brookfield is well aware of the impact a recession may have on its business, with its transportation business having the highest sensitivity. Apart from that, its other three divisions have nearly all of the cash flows contracted, which translates to 5% of the total portfolio being sensitive to recessions.

On the business development side of things, it’s been selling mature assets and recycling the capital into new projects with more growth potential.

It acquired a roughly $200 million stake in a New Zealand data distribution business; $500 million on a North American rail business; $150 million on a natural gas pipeline in North America and $400 million on an Indian telecom company so far this year.

The new acquisitions are expected to help drive FFO growth and should bring higher returns than the assets Brookfield sold to fund the acquisitions.

Its target for FFO growth of 6%-9% a year is pretty reasonable given that it sees increases to revenue from inflationary price increases in its contracts, in addition to the growth it will see in its non-contracted revenue.

Its dividend, which yields more than 4% with a target growth rate of 5%-9% annually, is ideal for passive-income investors looking for a growing yield backed by quality assets.

It warrants an investment today, as not only is it a high-quality company, but it’s trading for a discount to its past valuation and its utility peers, which it consistently outearns. Currently, its price to FFO is just 16.5 times earnings.

Brookfield will likely continue to be one of the best-performing companies into the foreseeable future, so picking up shares now for less than its historical valuation, seems like a prime opportunity to gain exposure to a portfolio of world-class assets.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. Brookfield Infrastructure Partners is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Structure My $14,000 TFSA for Constant Income

If you have $14,000 saved in your TFSA, here is one easy investment strategy to earn $50 of tax-free monthly…

Read more »

woman looks at iPhone
Dividend Stocks

I’m Not Selling Telus After the 55% Dividend Cut: Here’s Why

Contrary to what the market seems to be saying, Telus Corporation (TSX: T) still has a lot going for it.…

Read more »

monthly calendar with clock
Dividend Stocks

A No-Nonsense 3.7% Dividend Stock That Can Pay Retirees Monthly

This no-nonsense dividend stock has returned more than $3.4 billion to shareholders through dividends since 2013.

Read more »

dreaming of financial success
Dividend Stocks

3 Questions to Ask Before Buying a Dividend Stock

Buying a dividend stock? Here are three questions to help you look beyond the yield, with examples from Enbridge, Fortis…

Read more »

Woman in private jet airplane
Dividend Stocks

Make $100 a Month Tax-Free: How Much to Invest in Diversified Royalty and Where

The TFSA is the ultimate investment account to place your money and earn tax-free income.

Read more »

man in bowtie poses with abacus
Dividend Stocks

Passive Income From Dividends: What Canadians Can Realistically Expect

Here's the actual dividend math the passive income gurus won't show you.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

RRSP, TFSA or Both? A Quick Guide by Income Level

Your RRSP and TFSA are complementing accounts that you can use to shield your income from taxes.

Read more »

Real estate investment concept with person pointing on growth graph and coin stacking to get profit from property
Dividend Stocks

Buying Your First Home? The $8,000 FHSA Deduction Most Renters Miss

An eligible renter's $8,000 FHSA contribution can save $2,400 at a 30% tax rate, with the purchase date guiding investments.

Read more »