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Brookfield Infrastructure Partners: A High Yield Play On Global Infrastructure Cash Flows


  • BIP yields more than 4.5% after recent weakness.
  • This fund is under the Brookfield umbrella, meaning that it has a lot of cash and high quality management behind it.
  • Coupled with BEP, I have well diversified exposure to global infrastructure which I expect to be a stable growth market moving forward.

There are certain stocks that I buy in pairs. This is partly because of diversification measures, but also because in certain sectors/industries/sub-industries, I have a hard time differentiating between 2 or 3 leading competitors and instead of attempting to choose the winner amongst the bunch, I’d rather have broad exposure to all. A couple of examples of this are United Parcel Service (UPS) and FedEx (FDX) and Visa (V) and MasterCard (MA). I think FedEx is a better run company than UPS, but UPS pays a much higher dividend yield and is set to benefit from the same secular tailwinds. And when it comes to Visa and MasterCard, I honestly don’t know which is the better company (they’re both great!). So, why not own both and be done with it? Another example of this practice within my portfolio are a couple of Brookfield funds, Brookfield Renewable Partners L.P. (BEP) and Brookfield Infrastructure Partners. L.P. (NYSE:BIP). Although these two Brookfield funds have different stated goals/portfolios, I’m building these two positions side by side and side as I increase my exposure to infrastructure assets in lieu of utilities. Since my last piece here at Seeking Alpha was focused on BEP, it only made sense to follow that up with a BIP piece.

Unlike BEP, whose portfolio consists of renewable energy assets, highlighted by dams, wind farms, and solar arrays, BIP’s portfolio is focused on a much wider variety of infrastructure assets, which includes power generation, but also things like railways and toll roads, ports, natural gas storage and pipelines, and cell towers & fiber lines for the communications industry. BIP’s portfolio’s cash flow profile is spread out fairly evenly, which I like; BEP is so highly exposure to hydro assets that it’s nice to see BIP spreading its wealth across the board as far as global infrastructure goes.

This article was written by

Nicholas Ward profile picture

University of Virginia, class of 2011 B.A English

Senior Investment Analyst at Wide Moat Research.

Contributor for Safe High Yield, The Dividend Kings, iREIT, and The Forbes Real Estate Investor.

I am also the former  editor-in-chief and portfolio manager at The Intelligent Dividend Investor.  

Check out my youtube channel for other investing ideas: https://www.youtube.com/channel/UCP7AhF_TqJSE7fN7CFwxKlg?view_as=subscriber

Ranked #18 overall blogger by TipRanks for 2014.

Former contributor at TheStreet.com (where I cover stocks held in Jim Cramer's Action Alert PLUS Charitable Trust Portfolio), Investing Daily, and Sure Dividend.

Former Editor-in-Chief of The Dividend Growth Club and The Income Minded Millennial.

I am a young investor focused primarily on dividend growth stocks. Seeking Alpha, and more specifically, the dividend and income community that exists here, has played a significant role in my development as a portfolio manager. I am not a professional, though I do manage my family's finances. I enjoy the process; the research, the decision making, the strategic planning...and not paying a financial adviser to do the work for me.

I've built what I believe to be a conservative, diverse, and balanced dividend growth portfolio currently consisting of ~60 positions. At the end of every month I break down the portfolio in my Nicholas Ward's Dividend Growth Portfolio Updates.

Thus far, I've been able to meet by goals from income, income growth, and capital appreciation standpoints. I use a wide variety of metrics, both fundamental and technical, when establishing fair value when doing my due diligence on an individual company. All of my methods are discussed in my work here.

I hope this work inspires debate, conversation, and education - this is why I write for Seeking Alpha, to give back to the community that has helped me so much and to hopefully contribute, in some way...even if its by posing a question, to the growth of others.

*I should note that all articles that I write here are done so for my personal informational/educational purposes only. Any purchases that I make or opinions that I express are not meant as recommendations for anyone else. Please perform your own due diligence before following my lead into or out of a position. I am not a professional. I am not a financial adviser of any sort.  I enjoy investing and the open discussion that articles on this site inspire - this is why I write, not to influence anyone else's decisions, but to enhance my own ability to make sound financial choices. That being said, I wish the best of luck to everyone. May we all meet our own financial goals.

Analyst’s Disclosure: I am/we are long UPS, FDX, V, MA, BEP, BIP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (67)

Filtersweep profile picture
How do BAM and BIP fare in a taxable account?
I didn't know this information ... but I had the idea to sell recently, while I had a gain. I put the money to use elsewhere.
plus the sec has said they are looking at them again, in conjunction with the royal police, plus Brazil's mess is not over, & they are looking at other ways to force them to repot ffo without their own interpretation, these guys are the best at what they do, but in ten years they have been dragged into Court umpteen times, all over the world, but they use an off shore island to do business lol, yes they have paid a nice check to me for years, but it's dead money, 45 won't be gotten again, not with this environment, so don't ever assume management is ok, bam is a bond babies of structure, not fcf, this is a company bigger than the outcome, it's dead money
they are NOT "cut from the same cloth as buffet", that's an insult to him, brooksfield is an off shore tax haven, & they make bond babies out of thin air, this is a dead money space until the world stops looking at Bermuda & Barbados, brooksfield is so creative at their fcf cash reporting & terrible at being up front, their Canadian, but don't do paperwork unless it's off shore, the royal Canadian police are all over them, & ra is the next laugh, an assets fund with no assets, these companies used to be ripe with the old world, bonds are going to sell, & sooner or later they will be gotten, they are old dogs in a new market, 3 yrs ago they were hot, now can the stock price continue to rise? no its priced for perfection, low 30's is where it's going, the present is not the past, & the future will show brooksfield is a bond mill, a bonds scheme at best
sc21 profile picture
Interested in your piece but a bit confused. If one looks at total returns on nav over the last five years, Bam has has under performed both BX and Ares by a significant amount. How do you account for this? Could be that they spun out holdings but the average total returns on the nav values just are not as good. What am I missing? tIA SC
Nicholas Ward profile picture
I haven't taken an in depth look at BAM (having focused on BIP/BEP, which I own). My work on BAM thus far has been much more generalized/philosophical based rather than delving into the numbers/past history of results. Someone who owns BAM could probably speak up with a more informed opinion.
sc21 profile picture
thank you for your timely reply but it real is not a satisfying reply. Your essay is full of praise for BAM and any reader would think that given your respect for the ceo , that you think it is a very well managed company. Yet on such a basic level as total return on Nav, BAM has not been a very strong pro former Perhaps total return on nav is not a suitable metric but to write a full piece with praise of management and not be able to come up with something like I've not looked into it is disappointing to say the least.As I suggested both BX and Ares have delivered much more to shareholders than has BAM. Now if BAM has delivered value by distributing shares. in their other firms, then this should be made clear. If not why would anyone want to take BAM over others which have done better. Looking at your holdings, you too are not a holder at this point.
I'm not trying to bash BAM but rather to understand why I should be interested in this firm. I do hold shares in BIP which has done much better. I was also impressed on listing to fund managers from BAM but their delivery as reflected in the morningstar numbers leaves much to be desired. If I'm missing something , then I would like to know about it. TIA SC
Nicholas Ward profile picture
I do assume that BAM is a well managed company; however, I simply don't have any numbers floating around in my head that could answer your questions due to a general lack of research on BAM specifically.
BIP/BEP are headquartered in Bermuda. My understanding is there is no withholding tax taken on dividends from Bermuda. Is this correct? Or do the Canadian rules come into play? I would hold these in an IRA so there would be no Canadian taxes withheld.
5ofDiamonds profile picture
Hi Nick - I prefer VNQI over BIP.

Best wishes.
Nicholas Ward profile picture
I'm not familiar but I'll happily take a look. Thanks.
Vandooman profile picture
Good article. Actually BEP seems to have declined less lately. Probably less reaction to interest rates or just wasn't stretched as much at the highs.

Re K1s I hold my partnerships in non-taxable accounts. Either way you get income deferral but I was caught when Kinder wound up its partnerships and it was a deemed sale for tax purposes. Cost me big time. Also for a long term holder you eventually pay capital gains taxes on distributions when your cost basis hits zero because of returns of capital. In a taxable account it is also painful if you no longer like a name and decide to sell. You pay capital gains above the reduced cost base, plus some at your full rate of tax.

Previously there was the promise of eventually paying at the lower capital gains rate for distributions but with the new tax law it is the same rate as qualified dividends so no advantage. So in an IRS you can toss the K1 in the trash, no worries about corporate form down the road, and sell anytime you want with no penalty.

By the way, K1s are always the last thing to arrive at tax time and you get to fight your way through them in order to file. Sometimes there are items impossible to understand. If you sell you have to get further information from the issuer attached to the next K1 and you have no clear idea what your tax liability will be and how much is taxed at your full rate.
06 Mar. 2018
What is the relationship between BIP and BAM? I think BAM owns 30% of BIP and determines where to invest BIP's capital. BAM then manages and eventually sells the purchased business for BIP. Is this correct? How much does BIP pay BAM to manage the investment? Where can I find the info?
Nicholas Ward profile picture
Here's the Brookfield website, which has basic breakdowns of each partnership as well as in-depth financial reports depending on how much time you want to dedicate to this due diligence. I've only begun working on BAM so I don't know the exact percentages off the top of my head.
Good article. I own both BIP and BEP. As a aside, I also own BIF to add to the ticker confusion.
Someone mentioned holding this in an IRA. Normally, I shy away from holding MLPs in retirement accounts due to UBTI issues. However, BIPs website says this on the subject:

"Unrelated Business Taxable Income (UBTI)
Brookfield Infrastructure L.P. currently has access to a revolving credit facility that it does not anticipate using. If the credit facility were utilized by Brookfield Infrastructure L.P. it may generate UBTI. Debt financed UBTI has not been and is not expected to be a material portion of Brookfield Infrastructure Partners L.P.'s income. UBTI is relevant to U.S. tax exempt entities."

How much UBTI has BIP generated in the past? Do you feel it would be safe to hold it in a tax-advantaged account?
I also stay away from the possible tax consequences and the headaches associated with the dreaded K-1 and could not decipher whether that will be an issue from studying Brookfields website.
Nicholas Ward profile picture
From what I've heard, Brookfield does its best to make the K-1 process as painless as possible and tries to avoid UBTI as well. I guess I'll find out this tax season.
Vandooman profile picture
See my later comments on taxes but I have held many partnerships in an IRA and have never had a problem. Theoretically you could but the MLPs are conscious of not triggering UBTI and if one did it would probably be a very minor problem. The amount has to be over a minimum amount to trigger tax. Accountants get excited by it but to me it was always a non issue.
Nicholas, thanks for writing about BIP and BEP. I was aware of these 2 companies. Thanks for bringing them back onto my radar again. BAM.A looks good too. Please keep writing about Canadian companies.
"how many other companies can you name that yield more than 4.5% and offer sustainable mid-high single digit income growth prospects?"

ENB & D. BIP looks good too ... that would make one heck of a trifecta IMHO. Already have 2 of them, think I may have to go for the hat trick.
Nicholas Ward profile picture
D came to mind when I wrote that statement; I know their management hopes to increase the dividend 10% for the foreseeable future. I don't follow ENB - I'll check it out.
You're in luck ... Dividend Sensei just wrote an article on ENB:
Nicholas Ward profile picture
That is lucky - he always puts together in-depth analysis. Thanks for the link!
kovnat profile picture

I am commenting here on your paired investment policy and as I have long wavered between an investment in FDX and UPS, I keep coming back to your suggestion of buying both of them.

Then there's another pair not mentioned by you. I have long owned PEP and KO and always felt comfortable about having both. I have even thought of making it three-of-a-kind by starting a position in DPS. Unfortunately, Dr. Pepper refuses to snap down like the rest of the market and carries the burden of a persistently sky-high valuation. I suppose I'll have to be patient and wait longer or be satisfied with my one pair.

Disappointed Dan
Nicholas Ward profile picture
Dan, I own both KO and PEP but I've accumulated more shares of KO for whatever reason. So, while this is a nice pair to own for sure, I haven't been committed to the equal weightings like I have with some others. Same goes with T/VZ, NNN/O/WPC, The big banks, the F.A.N.G. names (minus NFLX), a number of semi's, etc.
The Virtuous Cycle profile picture
I also recommend you consider adding BAM if a market pullback or recession transpires in the not-too-distant future (or perhaps even if neither happens). Like John Train wrote, use the masters (like Lou Simpson) as a filter for sourcing ideas: "They constantly scan one another's portfolios, so there's no reason not to do the same. Don't worry that it's somehow unsporting, like shooting quail on the ground."

Besides Simpson, Tom Gayner and Glenn Greenberg own BAM, too. Of course, they're not always right, but these are good investors who run concentrated portfolios, meaning that their investment in BAM is likely a high-conviction pick.
Totally agree with you on BAM. Their unrealized carry keeps growing, tons of cash to deploy. I love the massive concentration Simpson has!

I personally think that BBU is the most undervalued right now in the family. Reason is that even after the recent run up they have some huge possible appreciation. Their graphite electrodes business has already returned 100% gain... they own something like 30% of the business and will IPO it soon. I’m not great at valuing IPO and so forth but I think they can easily harvest 500-1bil off just that IPO with a 4b market cap. Plus TOO, the gaming licenses in Canada, palladium, etc.

BAM benefits from all of it too, so either way I think both are good plus and I am super long BiP, BaM and BBU.
Nicholas Ward profile picture
BAM is def. on my watch list - on weakness I will pick up shares (I may not have the patience to wait that long).
The Virtuous Cycle profile picture

I appreciate the multiple mentions and links.

Irreplaceable infrastructure assets that are critical to the day-to-day functioning of the global economy, strong management track record, high yield, and a multi-trillion dollar market opportunity with virtually no disruption risk. What's not to love about BIP?

Richard895 profile picture
Also, just looked at BEP. Like their renewable energy projects. Looked info fastgraph to see their overall return. Any thoughts on why BEP's return is not closer to S&P over the past 9 years. Overall return seems to be just 5%. Just trying to learn and understand. Not comfortable with their fluctuations on Revenue, cash flow as well. Would love to get your thoughts. Thanks
Nicholas Ward profile picture
BEP has been more volatile than BIP - I suspect this has to do with the more speculative connotations that typically come with sustainable/renewable/... energy investments. I have more concerns about BEP than I do BIP, but I'm compensated with a significantly higher yield by the market for dealing with these concerns. When looking for sustainable energy/infrastructure in my portfolio, I haven't found a better option than BEP (issues and all).
Richard895 profile picture
Thanks for your inputs. Will keep an eye on BEP. I like NEE in that space.
Finding Value profile picture
I would guess that it has also to do with hydrology.
Richard895 profile picture
I recently bought BIP, however I am down 7%. I may have bought little early. I am not too worried about price action as its just a small position still. Looking forward to add on dips. Do you know if hike in interest rate will have impact on BIP, as like other MLP. Also BIP has a pay structure that it needs to pay BAM (as its general partner). I am confident that they will work within their house to share the profit, but still not very comfortable understanding the fluctuations in revenue, cash flow etc in fastgraph. Thanks for the article.
Nicholas Ward profile picture
I'm with you - I'm down something similiar on my first purchase but I was more than happy to average down. I'm sure than an interest rate hike will effect this company, though it's operations are fairly complicated and I don't have an estimation of exactly how much; either way, I suspect this management team has the know how to operate successfully within a wide variety of interest rate environments so I've never felt the need to over complicate it/try to calculate 25 bps impacts on the top/bottom line.
Dividend Sleuth profile picture
Excellent article about a great partnership. Thanks, Nick!
Nicholas Ward profile picture
Thanks DS - glad you enjoyed the article and think highly of BIP.
billinsd profile picture
I own the BIP in my IRA account....LONG BIP
Nicholas Ward profile picture
Cool - I'm starting to realize this is more widely held amongst the DGI community than I suspected.
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