Brookfield Infrastructure Partners (TSX:BIP.UN) is a popular TSX dividend stock in Canada. However, it has trailed the broader markets in the last three years due to headwinds such as inflation, rising interest rates, and a sluggish macro environment. Today, Brookfield Infrastructure stock is down 16% from all-time highs and offers shareholders a tasty dividend yield of US$1.62 per share, indicating a forward yield of 4.6%.
The bull case for the TSX dividend stock
Brookfield Infrastructure is among the largest owners and operators of global infrastructure networks that facilitate the movement and storage of passengers, freight, energy, water, and data. It has four primary business segments: utilities, midstream, data, and midstream.
In September 2024, it closed the acquisition of 76,000 telecom tower sites in India, making it the largest telecom tower operator in the country and the second largest globally. The acquisition will complement its existing operations and offer cost synergies.
Brookfield Infrastructure continues to deliver solid results and is on track to achieve its capital-recycling target of US$2 billion for 2204. With multiple interest rate cuts on the horizon, Brookfield Infrastructure is in a market environment with increased deal flow and a robust investment pipeline while positioning the company to benefit from growth in sectors related to artificial intelligence.
A strong performance in Q3 of 2024
In the third quarter (Q3), Brookfield Infrastructure reported funds from operations (FFO) of US$599 million, which is up 7% year over year. Its FFO per share grew by 4% to US$0.76 in the September quarter. Brookfield said its FFO growth was driven by contributions from investments completed in the past year and acquisitions.
Moreover, annual rate increases from inflation indexation, stronger transportation volumes, and the commissioning of more than US$1 billion from its capital backlog allowed Brookfield to grow its FFO year over year.
Here’s how each of its business segments performed in Q3:
- Utilities: The segment grew FFO by 9% on a comparable basis to US$188 million as it commissioned more than US$450 million of capital into the rate base in the past year.
- Transportation: FFO grew by 50% to US$308 million due to the acquisition of its global intermodal logistics operation that closed at the end of Q3 of 2023. The average rate increases in its rail networks were 7%, while its toll road portfolio rates rose by 5%.
- Midstream: FFO fell to US$147 million from US$163 million last year due to capital-recycling activities at its U.S. gas pipeline and higher interest costs.
- Data: The segment reported an FFO of US$85 million, up 29% year over year. Its global data centre platform continues to execute its development plans with an additional 70 megawatts commissioned during Q3, bringing its total installed data centre capacity to over 900 megawatts.
Is the TSX dividend stock undervalued?
Brookfield Infrastructure has reported an FFO per share of US$2.31 in the last three quarters. Comparatively, it paid shareholders a dividend of US$1.2 per share, which indicates a payout ratio of 52%, which is sustainable even if macro conditions deteriorate.
Today, BIP stock trades at 11 times forward FFO, which is cheap given its steady earnings expansion and dividend growth. Brookfield has more than tripled its dividend payout in the last 13 years, enhancing its effective yield.
Analysts remain bullish and expect the TSX stock to gain over 15% in the next 12 months.
