Why You Should Buy Brookfield Infrastructure Partners L.P. Instead of Brookfield Asset Management Inc.

Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) has outperformed Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) and all of the other partnerships. Here’s why it has the growth pipeline to continue.

| More on:
The Motley Fool

Over the past five years, Brookfield Asset Management Inc. (TSX:BAM.A)(NYSE:BAM) has offered investors many ways to earn fairly low-risk returns. Public investors have the opportunity to either invest in Brookfield Asset Management itself or in one of its three listed partnerships, which Brookfield owns a significant stake in and collects fees from.

Listed partnerships include Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP), Brookfield Property Partners, and Brookfield Renewable Energy Partners. The question is, over the past five years, where would have investors been best off investing their capital? Looking at equity returns only (not including dividends), investors would have been, by far, better off by investing in Brookfield Infrastructure Partners, including the Brookfield Asset Management parent company itself.

Brookfield Infrastructure has appreciated 135% over the past five years compared to 115% for Brookfield Asset Management and 65% for Brookfield Renewable. Brookfield Property Partners has only been trading since 2013, so a proper comparison is not available, but Brookfield Infrastructure has outperformed it since its inception.

Of course, past returns do not mean future returns, but based on Brookfield Infrastructure’s huge pipeline of organic growth projects, acquisition opportunities, and built-in growth, this trend should continue.

Brookfield has three large transactions on the horizon

Brookfield has an extremely robust growth platform that will allow the company to generate funds from operation (FFO) growth of 6-9% annually going forward entirely through organic growth and excluding acquisitions. Over the past eight years, FFO has grown by 8% in U.S. dollars, but excluding the effects of currency exchange, it has grown by an impressive 12%.

When acquisitions are factored in, however, that FFO growth rate skyrockets to 23%. Currently Brookfield has three big transactions underway that will serve to boost that 6-9% rate, and there are plenty of opportunities available going forward thanks to Brookfield’s global platform, as well as the fact that there is gigantic need for infrastructure investments globally.

Brookfield’s largest deal—a transformative joint-acquisition for Australian port and rail business Asciano—will see Brookfield and a consortium of partners gain 50% control of Asciano’s port business (the remaining 50% will be owned by Australia company Qube). Brookfield and its consortium of partners will also gain 100% ownership of BAPS, which is a port, terminal, and supply chain service.

While Brookfield will not own any of Asciano’s rail business, the port business will be a major benefit to Brookfield. Brookfield already has a huge port business with ownership in 30 port terminals globally, and Asciano gives Brookfield a larger presence in the Asia-Pacific region.

In addition to this, there is little crossover between Asciano’s and Brookfield’s customers, and Brookfield sees itself gaining seven new customers in the transaction, which it could then link to its other businesses or could partner with in the future for investment opportunities. This acquisition would give Brookfield a global presence as a major owner and operator in the container ports business.

Brookfield will be able to fully fund its US$350 million stake in the business through the sale of a previous toehold stake in the business, and the transaction will also liberate $600 million to invest elsewhere.

Brookfield has plenty of organic growth opportunities as well

As mentioned previously, Brookfield expects to generate 6-9% growth going forward simply through organic growth. 3-4% of this growth is from built-in inflationary price increases that are guaranteed through Brookfield’s various contracts with customers. About 1-2% of the growth will come from GDP growth, and 2 -3 % will come from Brookfield re-investing its own cash flows in growth.

Currently, Brookfield has a large capital backlog of $1.7 billion, which it plans to deploy over the next couple of years in assets that are expected to return in the mid double digits. Going forward, these organic growth opportunities combined with acquisitions should drive excellent returns and more outperformance.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Mancini has no position in any stocks mentioned. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV.

More on Investing

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

stock research, analyze data
Bank Stocks

Canadian Bank Stocks: Buy, Sell, or Hold?

There are opportunities and risks on the horizon for the Canadian banks.

Read more »

Young Boy with Jet Pack Dreams of Flying
Stock Market

Is Air Canada Stock a Good Buy After Its Q3 Results

Down almost 60% from all-time highs, Air Canada is an undervalued TSX stock that remains an enticing investment in November…

Read more »

cloud computing
Investing

Where to Invest $10,000 in November

Given their solid underlying businesses and healthy growth prospects, I expect these two defensive stocks to outperform uncertain outlook.

Read more »

coins jump into piggy bank
Retirement

Here’s the Average RRSP Balance at Age 44 for Canadians

Holding stocks like Alimentation Couche-Tard (TSX:ATD) in an RRSP is a good way to build your wealth.

Read more »

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »