When it comes to creating passive income streams, investors should seriously consider boring investments, which tend to provide more conservative investors with the reliable and stable dividends they want. Boring assets underlie Brookfield Infrastructure Partners (BEEP -0.76%) portfolio as it seeks to support its generous yield of 3.7%. Here’s a quick rundown of the company and why you might want to buy and hold this boring stock for the long term.
Always working to improve
“Infrastructure” is a general term that describes the major physical assets that underpin the company. You probably take many of them for granted, as the list includes things like roads, seaports, energy pipelines, and electrical systems. In developed countries, people just assume that these things will be there and will work as intended. As investments, however, the story is that well-maintained infrastructure can provide reliable cash flow because everyone is ready to make sure it doesn’t become a major problem.
Brookfield Infrastructure Partners, as the name suggests, focuses on owning and operating these types of assets. Its portfolio is spread across the utilities, transportation, midstream energy and data sectors. Approximately 44% of its funds from operations (FFO) comes from North America, with the remainder split between South America (19%), Asia-Pacific (19%) and Europe (18%). ). In other words, it’s kind of like a one-stop-shop for investors looking for diversified exposure to infrastructure.
In the meantime, he is an active investor. That means he’s willing to buy assets he thinks are cheap and sell those he thinks will yield a premium, using the proceeds to fund the aforementioned acquisitions. Moving the prices of an asset from cheap enough to buy it to valuable enough to get a generous price for it involves both mining the assets well and investing in them to create more value. And, noting the data component, management is also willing to diversify into emerging infrastructure niches, which is also aided by the buy-sell process. Fundamentally, Brookfield Infrastructure is designed and managed as a long-term business.
forever is a long time
That’s great, but there will be ups and downs in the business over time. However, the inevitable down cycles should probably be viewed as opportunities to add this infrastructure game to your portfolio. Notably, Brookfield Infrastructure has more than 10 years of consecutive annual dividend increases under its belt. The average annual increase in distribution since 2009 has been 10%. The partnership went public in 2008, so the annual distribution sequence has been virtually unbroken since the IPO.
That’s not shocking, though, as distribution growth is a central focus here. On the partnerships website – the ‘Overview’ page – it explains: “With an attractive distribution yield and a distribution growth target of 5% to 9% per annum, Brookfield Infrastructure offers strong risk-adjusted total returns to its investors. “Generous distributions, clearly able to keep up with historic inflation growth, are not an accessory.
And don’t overlook the term “risk-adjusted” either. This refers to the diversified portfolio of cash-generating infrastructure assets that are essential to the proper functioning of society. Additionally, Brookfield Infrastructure’s balance sheet is investment grade, meaning it is also financially conservative.
As additional support, the partnership is managed by Brookfield Asset Management (BAM -2.08%), a large Canadian asset manager with a long history in infrastructure. If there was a problem, the parent is likely to step in to help Brookfield Infrastructure through the tough times.
A mainstay of passive income
Clearly, no investment is perfect, and Brookfield Infrastructure could be affected by broader operational, geopolitical and market issues. Units are, in fact, down about 15% in the last three months, slightly worse than the S&P 500 Index. However, with above-market yield, a solid business model, and an impressive payout history, long-term dividend investors should probably take the time to get to know this boring infrastructure name when it’s unloved.
Reuben Gregg Brewer has no position in the stocks mentioned. The Motley Fool fills positions and recommends Brookfield Asset Management. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV, Brookfield Infra Partners LP Units and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.