Financial moguls such as Warren Buffett and Benjamin Graham built massive wealth by holding value stocks over time. The value investing strategy is quite simple: You hold a basket of stocks that trade below their intrinsic value and benefit from outsized gains when market sentiment improves.
With inflation cooling off and interest rate cuts on the horizon, quality companies in capital-intensive verticals such as infrastructure, energy, and real estate might stage a comeback as investors rotate out of big tech in the U.S. and Canada.
The time is ripe to buy beaten-down, undervalued TSX stocks, which can provide a steady stream of passive income, a tasty yield, and capital gains.
One such TSX dividend stock is Brookfield Infrastructure Partners (TSX:BIP.UN), which trades 25% below all-time highs and offers you a forward yield of 5.1%.
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Brookfield Infrastructure Partners is well diversified
Valued at $19.7 billion by market cap, Brookfield Infrastructure owns and operates a portfolio of cash-generating real assets that facilitate the movement and storage of freight, energy, water, passengers, and data. It invests in infrastructure vehicles globally, which provides diversification and lowers overall risk. These premier assets generate stable cash flows and enjoy high margins as well as strong growth prospects.
Brookfield Infrastructure has four primary business segments: utilities, transport, data, and midstream. The transport segment accounts for 41% of funds from operations or FFO, followed by utilities, midstream, and data at 28%, 21%, and 10%, respectively.
Brookfield’s utilities business is regulated or contracted, and it earns a return on the asset base. It consists of businesses that provide regulated transmission and distribution of electricity and natural gas in nine countries across five continents.
The transportation business has large rail operations in Australia, Europe, and the Americas, as well as toll roads in Brazil, Peru, and India. BIP owns and operates 37,300 kilometres (km) of railroads, 10 terminals, two export facilities, and 3,300 kilometres of toll roads.
Brookfield owns 15,000 km of transmission pipelines, 17 natural gas liquids processing plants, and natural gas gathering pipelines. Finally, the data business operates 135 data centres, two semiconductor manufacturing foundries, 228,000 operational telecom sites, and 54,000 km of fibre optical cable.
Brookfield continues to grow its cash flows
In the first quarter (Q1) of 2024, Brookfield Infrastructure reported an FFO (funds from operations) of US$615 million, up 11% year over year. It reflected organic growth of 7% as well as contributions associated with over US$2 billion of new investments. Brookfield performed well amid a challenging macro environment due to inflation indexation, strong transportation volumes, and the commissioning of US$1 billion of new capital.
Between 2009 and 2023, BIP increased its funds from operations by 15% annually, which is exceptional. In 2023, its FFO per share stood at US$2.95, while its distributions were much lower at US$1.62, indicating a payout ratio of 55%.
BIP has almost tripled its dividend distributions in the last 12 years and is among the cheapest dividend stocks trading on the TSX.
Priced at less than 10 times trailing FFO, BIP stock is undervalued and trades at a discount of over 20% to consensus price target estimates.
