Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) stock has outperformed the Canadian stock market and Canadian utilities sector in the long run. Below is a YCharts graph illustrating the 10-year growth of an initial $10,000 investment in each.
BIP.UN, XIU, and XUT Total Return Level data by YCharts
More recently, though, the utility stock has performed more in line with the Canadian utility sector and even underperformed the market. So, it’s a good time for investors to explore the stock as a potential investment.
A wonderful business
Brookfield Infrastructure Partners is a wonderful business for investors to own for the long haul. It owns and operates a diversified portfolio of infrastructure assets that are critical to the markets it serves. Its utilities, transport, midstream and data infrastructure assets help move and store energy, water, freight, passengers, and data.
Overall, BIP’s portfolio generates stable cash flows, enjoys high margins, and has growth potential. About 65% of its funds from operations (FFO) are able to capture margin expansion from higher inflation and another 20% is protected from inflation. Substantial capital is needed to maintain and expand global infrastructure needs, providing BIP with potential acquisition opportunities since the utility has strong access to capital.
The management team running the business has extensive experience in the industry. BIP has a proven track record of delivering long-term results by being active owners. Initiatives include an ongoing capital recycling program through which it reviews mature assets that may be sold and the proceeds redeployed for better risk-adjusted returns.
A growing cash distribution
Since Brookfield Infrastructure Partners was spun off from its parent company, it has been raising its cash distribution every year. This is what long-term investors love to see.
This month, BIP announced its 15th consecutive cash distribution increase, a hike of 5.9%, which is decent given the interest rate hikes that have happened. For your reference, its 5-, 10-, and 15-year cash distribution growth rates were 5.8%, 6.3%, and 8.3%, respectively.
Going forward, management believes it’s possible for the FFO to grow north of 10% per year, which can drive healthy cash distribution growth of 5 to 9% per year.
Recent price action is a potential buying opportunity
After hitting a recent high of about $42 per unit, Brookfield Infrastructure Partners stock is heading down. This is a buy-the-dip opportunity for investors to grab shares at a higher cash distribution yield. At writing, BIP stock offers a nice dividend yield of almost 5.6%.
For your reference, the stock hit a yield of north of 6% about four times in the last decade. So, whenever the top utility stock reaches a cash distribution yield of over 6%, you can dig deeper to see if the business is still solid and load up if it is.
Based on the recent analyst consensus 12-month price target of $49.50 on TMX, the stock is already trading at a decent discount of approximately 20% at the recent price of roughly $39 per unit. Another 7%-plus drop in the stock would lead to an initial yield of about 6%.
