Better Buy in February 2024: Aritzia Stock vs. Brookfield Infrastructure Partners Stock

Brookfield Infrastructure is a more defensive and lower risk investment. It also provides steady returns from a 5.3% dividend yield.

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Is Aritzia (TSX:ATZ) stock or Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) a better buy this month? Let’s compare the two.

Aritzia is a design house that offers “everyday luxury” fashion, positioning its target market snuggly between the sub-luxury and mid-market. Last year, the stock was thrown into the slaughter house with shares falling close to 42% for the year. It was plagued by issues with supply chains, inventory storage costs, and so on. As well, it had lower consumer demand, potentially from higher inflation and interest rates. Aritzia is also investing in and expanding its retail locations in the United States, which could contribute to higher growth over the next couple of years.

Investors must be ready for Aritzia to be impacted by changes in consumer preferences and the ebb and flow of the economic cycle. For instance, around recessions, its sales and earnings could fall as consumers tighten their belts and stick with essentials.

As a global infrastructure platform, Brookfield Infrastructure Partners is a more defensive business that can withstand economic downturns better. It owns and operates essential infrastructure assets that help move and store energy, water, freight, passengers, and data. Its four segments are utilities (about 29% of its funds from operations (FFO)), transport (38%), midstream (24%), and data (9%).

BIP provides an overview of its assets in its November 2023 corporate profile presentation:

  • 4,200 km of natural gas pipelines
  • A global residential decarbonization infrastructure platform that services 10.5 million customers and eight million electricity and natural gas connections
  • 37,300 km of rail
  • 3,300 km of toll roads
  • Seven million 20-foot equivalent unit intermodal containers
  • 10 terminals
  • Two export facilities
  • 25,600 km of gathering, transmission and transportation pipelines, and 565 billion cubic feet (bcf) of natural gas storage and 5.7 bcf per day of natural gas liquids processing capacity
  • 227,000 telecom towers, two semiconductor manufacturing foundries, 35,000 km of fibre optic cable, and 975,000 fibre-to-the-premise connections
  • 90-plus data centres, with 520 megawatts of critical load capacity

Since stocks are innately volatile, BIP stock came with its own volatility. However, it was much milder compared to Aritzia stock. I also threw in a Canadian stock market exchange traded fund as a benchmark.

XIU Chart

ATZ, BIP.UN, and XIU data by YCharts

The sell-off in BIP stock likely had to do with higher interest rates. As a utility, it naturally has sizeable debt on its balance sheet. However, it is well capitalized and currently has limited exposure to variable interest rates. About 90% of its debt is fixed-rate. Furthermore, it is awarded an investment-grade S&P credit rating of BBB+, which should boost investor confidence.

XIU Total Return Level Chart

ATZ, BIP.UN, and XIU Total Return Level data (with an initial investment of $10,000) by YCharts

Interestingly, in the last five years, as shown above, Aritzia delivered the highest returns – doubling investors’ money. However, it was a wild ride. It could be devastating for an investor buying the stock near a peak. Therefore, it’s much more important to time the market for a relatively risky (or unpredictable) stock like Aritzia.

On the other hand, it would have been a delight to buy the stock close to a bottom. For example, from the late 2023 bottom, ATZ stock has appreciated approximately 68%! To be clear, it may not be easy buying at the bottom and holding it until now. However, it would have been a lucrative trade nonetheless.

In contrast, BIP provides more consistent returns from a nice cash distribution yield of about 5.3%. It is also committed to increasing its cash distribution by at least 5% per year, which will be supported by its target to increase its FFO per unit by at least 10% annually.

Investing takeaway

Aritzia and Brookfield Infrastructure Partners are entirely different businesses. Given the riskier nature of Aritzia’s business, prudent investors would seek a substantial discount in the stock for a potential purchase. Right now, it is fully valued.

BIP is the opposite. It generates durable cash flows and will increase its cash distribution every year. The dividend stock also offers a cash distribution yield of 5.3% today, providing steady income for investors. Additionally, at $41.55 per unit at writing, analysts estimate the stock trades at a decent discount of roughly 20%. Therefore, I believe BIP is a better buy right now.

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 has positions in Brookfield Infrastructure Partners. The Motley Fool has positions in and recommends Aritzia. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

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