Brookfield Infrastructure vs. Brookfield Renewable: Which Brookfield Stock is a Better Buy?

Both Brookfield Infrastructure (TSX:BIPC) and Brookfield Renewable (TSX:BEPC) are dividend income earners trading at a discount, but which stock is best?

| More on:
green power renewable energy

Image source: Getty Images

Brookfield Infrastructure (TSX:BIPC) and Brookfield Renewable (TSX:BEPC) are both stocks in the utilities sector. Their parent company and general manager, Brookfield Corp., has substantial stakes in utility stocks and generates nice income from them. Investors can grab their share of the income, too. But which Brookfield stock is a better buy?

BIPC Chart

BIPC data by YCharts

Both utility stocks are down meaningfully over the last few years, as shown in the YCharts above. Based on the stock price, the stocks underperformed the utility sector (using the iShares S&P/TSX Capped Utilities Index ETF as a proxy).

The sector has been pressured by higher interest rates since 2022. Because utilities have large debt levels on their balance sheets, their interest expenses are expected to rise in a higher interest rate environment.

Although the Bank of Canada has cut the policy interest rate by 0.25% earlier this month, it is the general belief that the central bank will not significantly reduce the rate quickly. There’s simply no catalyst for that. Besides, there’s always a lag period for interest rate cuts to trickle down to businesses. Furthermore, both utilities are global with big parts of their operations in other countries. So, the central bank actions in those countries impact their interest expense even more.

BIPC Total Return Level Chart

BIPC Total Return Level data by YCharts

Let’s keep in mind that investor returns come from any booked price gains along with any dividends received. The utility stock returns were less painful when dividends were accounted for, as shown in the above chart. That said, the broader Canadian stock market (using the iShares S&P/TSX 60 Index ETF as a proxy) still outperformed the sector and utility stocks in the period.

This suggests that given the right environment, the utility sector and the stocks could outperform the market. A big part of what attracts long-term investors is the compelling yields often offered by utility stocks.

At writing, Brookfield Infrastructure stock and Brookfield Renewable stock yield 4.8% and 4.7%, respectively. So, there’s only a small difference. We can count a small win for Brookfield Infrastructure for having a slightly higher yield.

Investors can also consider investing in their limited partnership units, which are economically equivalent to the corporation shares, for higher cash distribution yields. Brookfield Infrastructure Partners L.P. yields almost 5.9% whereas Brookfield Renewable Partners L.P. yields 5.6%. As a benchmark for comparison, the XUT exchange-traded fund yields about 3.7%.

Notably, Brookfield Infrastructure Partners has historically delivered higher cash distribution growth. For instance, its 10-year cash distribution growth rate is 8.3% versus Brookfield Renewable Partner’s rate of 5.7% in the period.

Brookfield Infrastructure owns and operates a diversified portfolio of critical infrastructure assets that help move and store energy, water, freight, passengers, and data. It focuses on quality and essential assets that allow it to target organic growth of 6 to 9% that supports funds from operations growth and its growing cash distribution.

Brookfield Renewable has a diversified portfolio of hydro-, wind-, and solar-powered assets, as well as distributed energy and sustainable solutions.

Valuation-wise, analysts generally believe Brookfield Infrastructure is more attractive with a discount of about 27% versus the 13% discount of Brookfield Renewable. So, at the moment, Brookfield Infrastructure stock appears to be a better buy.

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 Corporation, Brookfield Infrastructure Partners, and Brookfield Renewable Partners. The Motley Fool recommends Brookfield, Brookfield Corporation, Brookfield Infrastructure Partners, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.

More on Dividend Stocks

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

person on phone leaning against outside wall with scenic view at airbnb rental property
Dividend Stocks

2 TSX Stocks Poised to Have a Big Summer

Restaurant Brands International (TSX:QSR) stock and another darling that could be too cheap to ignore this summer.

Read more »

Dividend Stocks

Forget Fortis Stock: Buy This Magnificent Utilities Stock Instead

Looking for high dividends and returns? Then I'm sorry, but Fortis (TSX:FTS) stock probably isn't for you.

Read more »

Increasing yield
Dividend Stocks

2 High-Yield (But Slightly Risky) Stocks to Keep Your Eye on

Have these top TSX dividend stocks finally bottomed?

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks I’d Buy if They Fall a Bit

Any near-term decline in these two top Canadian dividend stocks will make them look even more attractive.

Read more »