Brookfield Infrastructure Partners (TSX:BIP.UN) trades at a discount to Brookfield Infrastructure Corporation. Therefore, the former offers a higher cash distribution yield. Because this article focuses on dividends, the discussion will be based on the former with regards to the cash distribution yield and stock valuation.
Brookfield Infrastructure and Brookfield Asset Management (TSX:BAM) are publicly listed subsidiaries of Brookfield Corp. that pay decent dividend yields. Which is a better dividend buy? Let’s explore and compare the dividend stocks from different aspects.
Brookfield Infrastructure Partners offers a cash distribution yield of 4.3%. It has increased its cash distributions for 15 consecutive years with a five-year growth rate of 6.6%. Its recent payout ratio was 68% of funds from operations (FFO). Going forward, management is confident it can increase its dividend by 5-9% per year.
Brookfield Asset Management just became publicly listed in late 2022. So, it has no history of dividend growth as a standalone company. However, BAM has made public of its intention to increase its dividend over time. The dividend stock offers a dividend yield of just under 4%. Management aims to increase the dividend by at least 15% per year. For now, investors can only go by management’s word. Whether this will materialize depends on the actual growth of the business.
Brookfield Infrastructure is a top utility stock that just reported its first-quarter results last week. It experienced FFO growth of 12% year over year, including organic growth of 9%, which was supported by higher inflation on tariffs, strong volumes across its transport networks, and about US$1 billion of new capital projects that were put into service over the last 12 months.
It witnessed growth across all four core segments. In particular, the utilities and data infrastructure segments saw extraordinary FFO growth of north of 20% versus the same quarter in the prior year.
As a part of its normal capital-recycling program, this year, BIP expects to generate proceeds of about US$2 billion from asset sales, which can be redeployed for better risk-adjusted returns.
Brookfield Asset Management is a leader in managing alternative public and private assets globally for institutional and retail clients. It has about US$800 billion of assets under management (AUM) across renewable power and transition, infrastructure, private equity, real estate, and credit. It earns management fees on about half of its AUM. Last year, it increased is fee-related earnings by approximately 15% and its distributable earnings by roughly 10%.
For its latest results, investors should look out for its first-quarter results, which are coming out this Wednesday.
Although they have the same parent, Brookfield Infrastructure and Brookfield Asset Management are different businesses. Therefore, BIP targets a payout ratio of 60-70% of FFO while BAM targets a payout ratio of about 90%.
Even though BIP provides greater current income, if BAM is able to achieve a higher growth rate as it targets to, an investment in BAM stock today can overtake BIP’s yield on cost by 2025. That said, analysts believe BIP has a bigger margin of safety, trading at a discount of about 17% versus BAM’s discount of 11%.
So, BIP appears to be a better buy today. However, both dividend stocks can be excellent long-term income investments based on the execution track record of their parent company. Income investors should consider accumulating shares in both companies at attractive valuations when opportunities arise.