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3 Reasons to Buy Brookfield Infrastructure Partners, and 1 Reason to Sell

Infrastructure is a boring investment when you compare it to technology or healthcare. But the world needs roads, bridges, and ports to function. And when you look at Brookfield Infrastructure Partners(NYSE: BIP) generous 3.8% distribution yield and 15-year streak of annual distribution increases, it starts to look pretty compelling despite owning all those boring assets. Here’s why you might want to buy this high-yield investment and one notable reason why you might not.

1. Reliable, needed assets

As noted, the world needs infrastructure to operate. If you have ever suffered through a prolonged power outage, you know just how quickly your life descends into chaos without power. But the same is true of energy pipelines, roads, ports, and railroads. These are the backbone of the modern world that we take for granted until they aren’t available or fail to function properly. 

So they are important, but what’s really notable here is that they also tend to generate steady fees. Essentially, you are happy to pay for electricity because it improves your quality of life. The same is true of most infrastructure. The costs are generally spread over large customer bases, so no person is hit too hard. But, collectively, the fees add up to big numbers. And the fees tend to get increased every year along with inflation. Thus, there’s a growing stream of income on top of any growth that comes from buying new assets. To put a number on that growth, Brookfield Infrastructure Partners has increased its funds from operations (FFO) from $0.62 per share in 2009 to an expected $3.84 in 2022.

2. Globally diversified

The key for Brookfield Infrastructure Partners is that it doesn’t focus on any one niche. It offers a borad exposure to infrastructure investment by asset type, with assets across the utility, transportation, midstream, and data arenas. And this diversification gives it plenty of room for future investment. But it also spreads its bets globally, with 44% of FFO derived from North America, 19% from South America, 19% from Asia, and 18% from Europe. This means management can not only pick the asset type but also the geographic region that seems to have the best opportunities. 

You know that diversification is good for your portfolio; it’s also good when it comes to infrastructure. Although things like utilities and ports tend to be resilient to economic downturns, they can’t avoid them. Having assets spread around the world helps to even out returns since some economies will generally be doing better than others even in difficult times.

3. Active asset management

The next big story here is that Brookfield Infrastructure Partners is very good at running and improving the assets it owns, but it isn’t wedded to them. If it can sell one at a good price and put the money to work in a new investment, well, management is just fine with that. In fact, a specific goal is to “buy, enhance, sell, repeat.” That helps to keep the portfolio fresh, thus allowing the partnership to remain relevant over time. The data-infrastructure investments it has been making are a prime example since they clearly didn’t exist before storing data in data centers and transmitting over cell towers was a thing. 

The big takeaway here, however, is that Brookfield Infrastructure Partners has proven that it can change with the world around it. And that means you can comfortably own it, collecting its generous and growing distribution for years to come.

One minor caveat

Dividend investors will probably like what they have read so far and will want to dig into the story a bit more as they consider adding this partnership to their portfolio. The one issue that might throw a wrench in that plan is that Brookfield Infrastructure Partners is actually an investment vehicle run by Brookfield Asset Management (NYSE: BAM). Brookfield Asset Management has an over 100-year history of investing in global infrastructure, so this isn’t a terrible thing by any stretch. However, Brookfield Infrastructure Partners’ leadership could, potentially, make decisions that are more aligned with Brookfield Asset Management’s needs than the needs of its investors. Given the strong distribution history, that’s not likely to be an issue, but it could be enough to scare the most conservative types off. And yet, if you step back, it still might be a reasonable risk worth taking to get the other benefits on offer.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in 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.

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