The Brookfield name is synonymous with investments in real and alternative assets. Brookfield has businesses across real estate, renewable power, infrastructure, private equity, credit/asset management, and even insurance.
Two unique Brookfield businesses
Brookfield Corporation (TSX:BN) is the parent company that spawned all the above publicly listed entities. As it has collected assets over the years, it has spun-off entities with specific sector focuses. It continues to maintain large stakes in these businesses.
Brookfield collects fee-related earnings, carried interest, and stakes in the profits of its listed entities. It has around $135 billion of capital deployed across its asset management, insurance, and operating business platforms. Very few people know about Brookfield Corp., despite it being one of the largest companies in Canada.
Brookfield Infrastructure Partners (TSX:BIP.UN) was spun out of Brookfield Corp. in 2009. Since then, it has built out a portfolio of diversified infrastructure assets around the world. It operates and manages $51 billion worth of assets focused on utilities, midstream/energy infrastructure, transportation, and data/communication infrastructure.
Performance of both Brookfield stocks
Both Brookfield Corp and Brookfield Infrastructure have underperformed the S&P/TSX Composite Index over the past year. In that time, BN stock is down 7.4%, and BIP stock is down 2.8%. The TSX Index is positive, with a 6.6% return over the year.
Rising interest rates have been a headwind for both businesses. Brookfield’s businesses are asset heavy. They generally require a lot of debt to enhance their return profile. As a result, the market has marked down their stocks.
While this is something to monitor, both entities have been very prudent about debt management. Likewise, they have been through several economic cycles before. Generally, they tend to use recessionary environments to buy cheap, beaten-up assets and come out on top.
Over the past 10 years, BN stock has earned a 250% total return (or 13.3% compounded annually). BIP stock has earned a 258% total return (or 13.6% compounded annually). Both stocks have substantially beaten the TSX Index by around 150%.
Valuation
After the recent decline, both stocks appear attractive. Brookfield Corp. stock trades at 12 times earnings, which is substantially below its five-year average of 17 times. If you do a sum-of-the-parts analysis of all its assets, investors are essentially buying its entire portfolio of real estate for free today.
Brookfield Infrastructure stock trades for around 13.5 times adjusted funds from operation (AFFO) (a more accurate measure of cash flow). Its historic five-year average is closer to 16 times. Given the company is likely to grow at a rate near or above its valuation, it looks like an attractive price-to-growth opportunity.
Dividends
Brookfield Corp. stock only yields 0.8%. However, you shouldn’t own this stock for the yield. The company tends to take its profits/cash flows and re-invest them into growing its various businesses. The company continues to see ample verticals of growth ahead.
Brookfield Infrastructure stock is one of the best plays for dividends in Canada. Today, this stock yields 4.23%. It has an excellent track record of growing its dividend annually by over 7%. Investors get an attractive balance of growth and dividend income with this stock.
The Foolish bottom line
Brookfield Corp. is a particularly good buy for patient value investors with an extended time horizon. The stock is extremely cheap now. However, it is difficult to tell when the market will recognize its value.
Brookfield Corp. has an exceptional management team, great assets, a strong investment franchise, and several verticals for longer-term growth.
Brookfield Infrastructure is likely the less risky stock. Investors can collect an attractive dividend, while also getting growth from a very low-risk base of high-end assets. It’s a good bet for dividend investors looking for a long-term hold.
