Brookfield Infrastructure Partners L.P. (TSX:BIP.UN) has an impressive history since its spin-off from its parent company in January 2008. With market-beating returns and a diverse portfolio, this company has captured the attention of investors seeking steady income and growth. As of now, it offers an attractive yield of 4.7%. But the question remains: Is Brookfield Infrastructure a smart buy for long-term investors?
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A track record of success
Since its inception, Brookfield Infrastructure has consistently outperformed both the broader Canadian stock market and the utility sector. Investors who held onto their units for the past decade have enjoyed annual returns of approximately 16%, effectively doubling the performance of the Canadian market and utilities during that period, as shown in the graph below.
BIP.UN, XIU, and XUT Total Return Level data starting with an initial investment of $10,000 by YCharts
However, the last three years have presented challenges, particularly with the higher interest rates. Although BIP.UN has underperformed the market — achieving annualized returns of 4.4% compared with the market’s 9.4% — it has still outpaced its sector, which managed a mere 2.1%. This mixed performance raises questions about the future, especially as interest rates continue to fluctuate.
BIP.UN, XIU, and XUT Total Return Level data by YCharts
A robust and diversified portfolio
Brookfield Infrastructure offers impressive diversification. Although it has two businesses contributing to more than 10% of its its funds from operations (FFO), it has more than 45 businesses across four primary segments — utilities, midstream, data, and transport infrastructure — and is well-positioned to weather economic storms.
Approximately 90% of its FFO comes from regulated or contracted sources, ensuring stable cash flows. This resilience has enabled Brookfield Infrastructure to grow its cash distributions at an average annual rate of 8.3% over the past decade. Management aims for a future growth rate of 5-9% per year, making the current 4.7% yield even more enticing for long-term investors.
Strategic investments and future growth
Year to date, Brookfield Infrastructure has engaged in strategic tuck-in and follow-on investments, including significant transactions like the US$4 billion acquisition of Cyxtera U.S. retail colocation data centres and the US$2.2 billion deal for ATC India telecom towers. These investments not only bolster its existing portfolio but also pave the way for future growth.
Moreover, the company boasts a record capital backlog of about US$8 billion, highlighting its commitment to organic growth. Major projects include a US$3.9 billion U.S. semiconductor facility and a US$1.2 billion global data centre platform. With these initiatives, Brookfield Infrastructure aims to capitalize on the growing demand for digital infrastructure.
The Foolish investor takeaway
Brookfield Infrastructure’s commitment to creating shareholder value is evident in its focus on optimizing capital structure and leveraging the tailwinds of digitalization. With more than 60% of its FFO tied to this trend, BIP.UN is positioned to benefit from the increasing reliance on digital services. Additionally, its prudent financing strategy, including a diverse mix of corporate bonds and bank loans, helps insulate it from interest rate volatility.
If you’re looking to start a position in a high-quality utility stock, Brookfield Infrastructure Partners offers a reasonable entry point today. With a solid yield of 4.7% and a robust growth strategy, it presents a good option for long-term investors seeking both income and capital appreciation. Given its historical performance and strategic direction, BIP.UN is worth considering for your diversified portfolio.
