Brookfield Infrastructure Partners (TSX:BIP.UN) has created massive wealth for shareholders since its IPO (initial public offering) in January 2008. In the last 16 years, the TSX dividend stock has returned 507.5%. But after adjusting for dividends, cumulative returns are much higher at 1,160%. Comparatively, the TSX index has gained “just” 194% in this period.
Despite its market-thumping gains, BIP stock trades 31% below all-time highs, as investors are worried about macro headwinds such as soaring interest rates, inflation, and a sluggish global economy. However, the ongoing pullback has meant that BIP stock now offers a tasty dividend yield of 5.7%. Let’s see why it makes sense to invest in this TSX dividend stock.
An overview of Brookfield Infrastructure Partners
Valued at $18 billion by market cap, Brookfield Infrastructure Partners is a global infrastructure company that owns and operates high-quality, long-life assets in sectors such as utilities, transport midstream, and data centres. These cash-generating assets are located in the Americas, Asia Pacific, and Europe.
Brookfield Infrastructure is focused on assets that have contracted and regulated revenues that generate predictable and stable cash flows. This allows the company to maintain and even increase its dividend payouts across market cycles.
How did Brookfield Infrastructure Partners perform in Q4 of 2023?
In 2023, Brookfield Infrastructure increased funds from operations by 10% year over year to US$2.3 billion or US$0.79 per unit. Its organic growth stood at 8%, reflecting strong levels of inflation and volume growth across critical infrastructure networks. Additionally, it commissioned US$1 billion of new capital projects that are contributing to earnings.
Due to its stellar 2023 results, Brookfield Infrastructure raised its annual dividends by 6% to US$1.62 per unit. Given its quarterly payout of $0.405 per share, BIP has a payout ratio of 51.3% which is quite low. A low dividend-payout ratio provides BIP with enough room to reduce balance sheet debt, target accretive acquisitions and raise dividends higher.
In the last 12 months, BIP closed over US$2 billion of new investments, generating US$1.9 billion of total proceeds from capital recycling. It also obtained a second investment-grade credit rating and maintained financial strength amid a challenging macro backdrop.
Due to its strong fundamentals, BIP could increase its dividends by almost 300% in the last 15 years, enhancing the yield-at-cost significantly.
BIP stock is undervalued
Brookfield Infrastructure’s cash flows are contracted, regulated, and indexed to inflation. In the last four quarters, it increased FFO by 9% year over year to US$2.95 per share. So, it trades at less than 10 times trailing FFO, which is very cheap. In fact, its annualized FFO run rate is much higher at US$3.16 per share, indicating a 17% year-over-year increase.
Its inflation-linked rate increases, volume growth, and organic growth should allow the company to grow FFO between 6% and 9% in the near term. Further, acquisitions should drive FFO growth by more than 10%.
Analysts tracking BIP stock remain bullish and expect shares to surge by 35% in the next 12 months. After accounting for dividends, total returns may be closer to 41%.
