When it comes to seeking out reliable dividend stocks, it’s important to be selective. One sector that consistently delivers a durable income stream is infrastructure. And one company that stands out in this space is Brookfield Infrastructure Partners (NYSE:BIP). Despite the recent downturn in its stock price, BIP offers strong operating performance, long-term fixed rates, and a history of distribution growth. In this article, we’ll explore why now may be an opportune moment to add this quality dividend stock to your portfolio.
Brookfield Infrastructure Partners is managed by the global asset manager, Brookfield Asset Management (BAM), and boasts a leading portfolio of high-quality, long-life assets in utilities, transport, midstream, and data segments across North and South America. This diverse asset base positions BIP for long-term success and stability.
Steady Performance Despite Market Volatility
While dividend stocks have faced challenges due to market volatility and changes in interest rates, BIP has weathered the storm. With inflation-protection built into its contracts and 90% of debt held at long-term fixed rates, BIP provides a reliable and recurring income stream for investors. This has translated into strong capital returns over the past decade, with a 14-year distribution growth history and an 8% CAGR over the past 10 years.
Despite recent price declines, BIP’s operating fundamentals remain robust. In fact, the company’s FFO per share grew by 10% YoY in the first half of 2023, and management is guiding for 13% YoY FFO/share growth for the full year. These numbers reflect the resilience and strength of BIP’s business model.
Unlocking Value Through Strategic Investments
Looking ahead, BIP has identified three major drivers of growth: digitization, deglobalization, and decarbonization. These drivers present significant opportunities for the company, particularly in the data center segment. BIP’s recent acquisitions of Data4 and Compass have expanded its operating capacity, making it one of the largest global hyperscale data center platforms. With over 1.25 gigawatts of capacity expected in the coming years, BIP is well-positioned for future success.
Despite its impressive growth prospects, BIP remains financially sound. The company holds a strong BBB+ credit rating and has $2.3 billion in available liquidity. Its net debt to EBITDA ratio of 6.2x is reasonable for its capital-intensive nature, especially when compared to other REITs in the market.
A Stock that Offers Value
Considering BIP’s strong performance and growth projections, the current stock price presents an attractive opportunity for investors. With a low forward P/FFO ratio of 8.7, BIP is undervalued compared to its potential upside. Based on a modest growth rate and discounted cash flow analysis, the fair value for BIP units is estimated to be $45.46, representing a significant upside from the current share price.
While there are risks to consider, such as a higher rate environment or potential headwinds from renewable energy and commodity prices, these factors are outweighed by BIP’s strengths and long-term growth prospects. With its solid balance sheet, attractive distribution, and track record of success, BIP should be on the radar of any investor looking for a quality dividend stock.