The United States has made improving its infrastructure a
In recent speeches promoting his renewed emphasis on the
economy, President Barack Obama has been reinforcing his
commitment to investing in the country's infrastructure, saying,
"We know strong infrastructure is a key ingredient to a thriving
That comes on the heels of his "fix it first" infrastructure
proposal earlier this year that would allocate $40 billion for
ailing highways, bridges and airports while setting another $10
billion aside to create a national infrastructure bank.
The push for more spending on infrastructure comes in response
to data from the National Association of Civil Engineers that
says domestic infrastructure is in dire need of an upgrade,
projecting long-term spending needs in excess of $2 trillion.
Long-term investments in rebuilding the country's
infrastructure will benefit the entire economy, but there is one
company in better position than others to profit.
Brookfield Infrastructure Partners (
is a master limited partnership (
) that owns and operates an impressive portfolio of domestic and
international infrastructure assets that generate stable cash
flows and require relatively minimal maintenance capital
expenditures. Its current portfolio consists of the ownership and
operation of several premier utilities, transport and energy
assets in North and South America, Australasia and Europe.
Brookfield's largest division is utilities, with more than
6,000 miles of electricity transmission lines in the Americas and
the United Kingdom. The utilities division recently completed the
merger and recapitalization of its U.K. regulated distribution
business, doubling in size, while also increasing its ownership
interest in its Chilean electricity transmission system.
Brookfield has also invested $750 million in a transmission
system in Texas that is near completion and set to go online next
Its energy division operates about 2.5 million electricity and
natural gas connections in the U.K., New Zealand and Colombia.
Its transport division provides energy distribution and storage
services through more than 9,600 miles of natural gas
transmission lines, primarily in the United States.
Brookfield also owns one of the world's largest coal-export
terminals in Queensland, Australia, with 85 million tons of
annual capacity that is 100 % contracted through 2018. The
company's broad portfolio of assets and exposure to global
markets creates a highly diversified revenue stream to protect
Brookfield against regional or market-specific weakness.
Although Brookfield will benefit from investments in domestic
and international infrastructure projects, the company is also
making strategic moves to focus on its core assets.
On June 16, Brookfield announced it sold the remaining 343,000
acres of timberland for $790 million, finalizing its divestment
of its timber business and netting $370 million in cash.
Brookfield also sold its remaining acreage in British Columbia
for $170 million.
Brookfield continued its divestures in early July, announcing
on July 5 that the partnership had entered into an agreement to
sell its 42% interest in an Australasian regulated distribution
business for $410 million. These sales have net the company a
total of $950 million, which it will reinvest in its core
businesses; Brookfield expects that money to generate annualized
after-tax returns on equity of 12% to 15%.
Those strategic adjustments will continue to fuel the
company's already impressive growth. The company's second-quarter
results from early May saw funds from operations -- a key
performance metric for MLPs -- jump to $160 million, or 80 cents
a share, from $108 million, or 58 cents a share, in the same
period last year. That 48% increase was driven by organic
expansion initiatives and recent acquisitions.
The company's strong financial profile continues to support
its outsize dividend yield of 4.8%. In the past five years,
distributions have grown more than 12% a year to a current
annualized rate of $1.72, yielding 4.3%. Management targets
annual distribution growth between 3% and 7% and paying out 60%
to 70% of funds from operations.
Looking forward, Brookfield is expected to increase its
earnings by 6% annually over the next five years, outpacing the
industry average of 5%. But in spite of its high dividend yield
and growth projections, Brookfield's forward price-to-earnings
ratio of 12 is below its 10-year average of 13 and its peer
average of 15.
Risks to Consider:
Utilities operating in highly regulated markets are always
vulnerable to changes in policy and rates. Brookfield also
carries significant exposure to the global coal market, with
consumption highly dependent on demand from China as its economy
showing signs of weakness.
Action to Take -->
Brookfield boasts an impressive portfolio of domestic and
international infrastructure assets. That places the company in
position to capitalize on the bullish trend in global